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A Continuous Model for Multistore Competitive Location

Abdullah Dasci¹; Gilbert Laporte²

¹ Belk College of Business Administration, University of North Carolina at Charlotte, 9201 University City Boulevard, Charlotte, North Carolina 28223-0001 · ² HEC Montréal, 3000 Chemin de la Côte Sainte-Catherine, Montréal, Québec, Canada H3T 2A7

This paper presents a simple model to determine the location strategies of two retail firms planning to open a number of stores in a geographical market. Firms try to maximize their profit under a leader-follower type competition in which the number of stores is made endogenous by the introduction of fixed costs. A novel methodology is developed in which firms’ strategies are defined in terms of their location densities. This methodology leads to a model that is solvable analytically, and to several results on competitive location strategies. First, it is shown that if the follower decides to enter a market, he enters at least as strongly as the leader. Second, the leader can effectively deter entry even if she is severely cost-disadvantaged. However, in some cases the leader is better off by allowing the follower to enter the market. Third, the leader may also let the follower enter the market in some situations where she has a cost advantage. It is also shown that in situations where both firms enter the market, their location strategies are quite insensitive to model parameters.

DOI

10.1287/opre.1040.0175

Volume

53 (2)

Pages

263-280

Language

en

Export

BibTeX

Sources

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