Lost demand in a competitive environment

Lost demand in a competitive environment

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Article ID: iaor2009860
Country: United Kingdom
Volume: 59
Issue: 3
Start Page Number: 362
End Page Number: 371
Publication Date: Mar 2008
Journal: Journal of the Operational Research Society
Authors: ,
Keywords: retailing
Abstract:

In most analyses performed on consumer behaviour in a competitive environment, it is assumed that discretionary buying power devoted to a certain product category exists in a trade area. The goal is to estimate how this buying power is distributed among competing retail facilities in the area. In this paper, we assume that in many competitive situations not all the buying power is spent at the competing facilities because there are other facilities that offer substitute products. These substitute products are not as desirable as the product in question, but customers will purchase the less desirable substitutes if they are more conveniently available. We construct a model that considers a decline in demand as a function of the distance to competing facilities. If the competing facilities are close to the customers, a larger portion of the buying power will be spent at these facilities.

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