Dynamic Retail Location Model with Market Learning

Facility location;Maximal covering problem;Retail operations;Market learning

Bhatti, Shahzad F. ; Chen ; Xin ; Lim ; Michael K.

关键词: Facility location;    Maximal covering problem;    Retail operations;    Market learning;   

Others  :  https://www.ideals.illinois.edu/bitstream/handle/2142/29444/Bhatti_Shahzad.pdf?sequence=1&isAllowed=y

美国|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

In this thesis, we study the optimal store location decisions for afirm entering a new market where the market adoption rate can be learned over time. In the presence of market learning, the firm faces a trade-offbetween active learning and deferred commitment. To illustrate this trade-off , we introduce a two-stage retail location problem in which the market learning time (lengthof the first stage) is endogenously determined by the firm's first stage action. To solve the problem, we develop an efficient solution method which provides a framework to achieve a desired error rate of accuracy in the optimal solution.The proposed algorithm is tested on the network constructed using census data from the city of Chicago. Using the model, we first show that the lack of foresight results in lower profit with over-commitment in facility investment and that the difference increases with market uncertainty. Wefurther show that the firm should prefer active learning over deferred commitment as consumers in the market become more conservative in making product adoption decisions.