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Dynamic Retail Location Model with Market Learning

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Title: Dynamic Retail Location Model with Market Learning
Author(s): Bhatti, Shahzad F.
Advisor(s): Chen, Xin; Lim, Michael K.
Department / Program: Industrial&Enterprise Sys Eng
Discipline: Industrial Engineering
Degree Granting Institution: University of Illinois at Urbana-Champaign
Degree: M.S.
Genre: Masters
Subject(s): Facility location Maximal covering problem Retail operations Market learning
Abstract: In this thesis, we study the optimal store location decisions for a firm 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-off between active learning and deferred commitment. To illustrate this trade-off , we introduce a two-stage retail location problem in which the market learning time (length of 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. We further show that the firm should prefer active learning over deferred commitment as consumers in the market become more conservative in making product adoption decisions.
Issue Date: 2012-02-01
Genre: thesis
URI: http://hdl.handle.net/2142/29444
Rights Information: Copyright 2011 Shahzad F. Bhatti
Date Available in IDEALS: 2014-02-01
Date Deposited: 2011-12
 

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