Competitive Location and Pricing on Networks with

Authors: Dominik Kress Erwin Pesch

Publish Date: 2015/09/09

Volume: 16, Issue: 3, Pages: 837-863

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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 fixedpoint 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 nonexistence 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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