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: | Hendrix Eligius |
Keywords: | game theory, supply & supply chains, decision |
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.