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Location of Competing Facilities in a User-Optimizing Environment with Market Externalities

Author

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  • Margaret L. Brandeau

    (Stanford University, Stanford, California 94305-4024)

  • Samuel S. Chiu

    (Stanford University, Stanford, California 94305-4025)

Abstract

In many location models, it is assumed that customers select the facility they will patronize based on the distance to that facility, or perhaps on a function of distances between the customer and the different available facilities. We consider a location problem in which customers select a facility based not only on travel time or distance to the facility, but also on negative externalities associated with the market share of the facility. A customer from any particular location frequents the facility that minimizes his travel time to that facility plus an externality cost that depends on the aggregated actions of all customers in the system. We consider the case of two competing facilities, each of which wishes to locate to maximize its market share. We specialize our analysis to the case of a tree network. We characterize the optimal facility locations, and develop an O ( n 2 ) algorithm for finding them.

Suggested Citation

  • Margaret L. Brandeau & Samuel S. Chiu, 1994. "Location of Competing Facilities in a User-Optimizing Environment with Market Externalities," Transportation Science, INFORMS, vol. 28(2), pages 125-140, May.
    • Handle: RePEc:inm:ortrsc:v:28:y:1994:i:2:p:125-140
    DOI: 10.1287/trsc.28.2.125
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    Cited by:

    1. Drezner, Zvi & Wesolowsky, George O., 1996. "Location-allocation on a line with demand-dependent costs," European Journal of Operational Research, Elsevier, vol. 90(3), pages 444-450, May.
    2. Caicedo, Felix & Diaz, Alejandra, 2013. "Case analysis of simultaneous concessions of parking meters and underground parking facilities," Transportation Research Part A: Policy and Practice, Elsevier, vol. 49(C), pages 358-378.
    3. Marianov, Vladimir & Rí­os, Miguel & Icaza, Manuel José, 2008. "Facility location for market capture when users rank facilities by shorter travel and waiting times," European Journal of Operational Research, Elsevier, vol. 191(1), pages 32-44, November.
    4. Godinho, Pedro & Dias, Joana, 2010. "A two-player competitive discrete location model with simultaneous decisions," European Journal of Operational Research, Elsevier, vol. 207(3), pages 1419-1432, December.
    5. Owen, Susan Hesse & Daskin, Mark S., 1998. "Strategic facility location: A review," European Journal of Operational Research, Elsevier, vol. 111(3), pages 423-447, December.
    6. Redondo, Juana L. & Fernández, José & Arrondo, Aránzazu G. & García, Inmaculada & Ortigosa, Pilar M., 2012. "Fixed or variable demand? Does it matter when locating a facility?," Omega, Elsevier, vol. 40(1), pages 9-20, January.
    7. Grossman, Thomas A. & Brandeau, Margaret L., 2002. "Optimal pricing for service facilities with self-optimizing customers," European Journal of Operational Research, Elsevier, vol. 141(1), pages 39-57, August.

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