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Competitive location and pricing on networks with random utilities

  • 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.

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Document Type:Article
Author:Dominik KressORCiD, Erwin PeschORCiD
Center:Center for Advanced Studies in Management (CASiM)
Year of Completion:2016
In: Networks and Spatial Economics, 16 (2016) 3, 837-863, DOI 10.1007/s11067-015-9301-y