Why Retailers Cluster: An Agent Model of Location Choice on Supply Chains
Presented at 89th Transportation Research Board Conference, Washington, DC, January 2010
20 Pages Posted: 5 Jan 2011 Last revised: 22 Jan 2011
Date Written: January 26, 2010
This paper investigates the emergence of retail clusters on supply chains comprised of suppliers, retailers, and consumers. An agent-based model is employed to study retail location choice in a market of homogeneous goods and a market of complementary goods. On a circle comprised of discrete locales, retailers play a non-cooperative game by choosing locales to maximize profits which are impacted by their distance to consumers and to suppliers. Our findings disclose that in a market of homogeneous products symmetric distributions of retail clusters rise out of competition between individual retailers; average cluster density and cluster size change dynamically as retailers enter the market. In a market of two complementary goods, multiple equilibria of retail distributions are found to be common; a single cluster of retailers has the highest probability to emerge. Overall, our results show that retail clusters emerge from the balance between retailers' proximity to their customers, their competitors, their complements, and their suppliers.
Keywords: retail clusters, agent-based model, location choice, distribution pattern
JEL Classification: A1, R40, R41
Suggested Citation: Suggested Citation