Competitive location and pricing on networks with random utilities
Publication date
2015-09-09
Document type
Forschungsartikel
Author
Pesch, Erwin
Organisational unit
University of Siegen
Publisher
Springer
Series or journal
Networks and Spatial Economics
ISSN
Periodical volume
16
Periodical issue
3
First page
837
Last page
863
Peer-reviewed
✅
Part of the university bibliography
Nein
Language
English
Keyword
Facility location
Competition
Price competition
Multinomial logit
Medianoid problem
Abstract
In this paper we analyze the effect of including price competition into a classical (market entrant’s) competitive location problem. The multinomial logit approach is applied to model the decision process of utility maximizing customers. We provide complexity results and show that, given the locations of all facilities, a fixed-point iteration approach that has previously been introduced in the literature can be adapted to reliably and quickly determine local price equilibria. We present examples of problem instances that demonstrate the potential non-existence of price equilibria and the case of multiple local equilibria in prices. Furthermore, we show that different price sensitivity levels of customers may actually affect optimal locations of facilities, and we provide first insights into the performance of heuristic algorithms for the location problem.
Version
Published version
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