Surviving in a Competitive Spatial Market: The Threshold Capture Model
Universitat Pompeu Fabra Economics Working Paper No. 359
25 Pages Posted: 21 Jul 1999
Date Written: February 2, 1999
Most facility location decision models ignore the fact that for a facility to survive it needs a minimum demand level to cover costs. In this paper we present a decision model for a firm that wishes to enter a spatial market where there are several competitors already located. This market is such that for each outlet there is a demand threshold level that has to be achieved in order to survive. The firm wishes to know where to locate its outlets so as to maximize its market share taking into account the threshold level. It may happen that due to this new entrance, some competitors will not be able to meet the threshold and therefore will disappear. A formulation is presented together with a heuristic solution method and computational experience.
JEL Classification: C61, R12, R53
Suggested Citation: Suggested Citation