On competition in a Stackelberg location-design model with deterministic supplier choice

On competition in a Stackelberg location-design model with deterministic supplier choice

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Article ID: iaor20163545
Volume: 246
Issue: 1
Start Page Number: 19
End Page Number: 30
Publication Date: Nov 2016
Journal: Annals of Operations Research
Authors:
Keywords: game theory, supply & supply chains, decision
Abstract:

We study a market situation where two firms maximize market capture by deciding on the location in the plane and investing in a competing quality against investment cost. Clients choose one of the suppliers; i.e. deterministic supplier choice. To study this situation, a game theoretic model is formulated. We show that for the modelled situation no Nash equilibrium exists. However, a so‐called Stackelberg equilibrium, where one of the firms (the leader) is aware of what the other (follower) is going to do, exists. The questions under study is whether co‐location is a natural phenomenon in this case and in which situation one of the firms is not entering the market. The study requires a multi‐level thinking where the decisions on location follow from the known quality investment behavior and the actions of the leader take the decisions of the follower into account.

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