Optimal Continuous location of a

Retail Facility, Facility

Attractiveness, and Market Share:
An Interactive Model

TAMMY DREZNER
California State University-Fullerton

In this paper a model for the location of a retail facility anywhere in the plane is presented.
Existing location papers suggest that marketers can evaluate a set of potential sites for the
location of a new facility. The site that maximizes the market share captured is selected.
However, the best site for the new facility may not be included in the user provided set of
potential sites. Finding the best location anywhere in the plane requires the analysis of the
market share function which is addressed in this paper. In addition, a sensitivity analysis of
both the best location and the market share captured is provided. Computational experi-
ments illustrate the properties of this functionand its sensitivity to the data parameters. The
analysis shows that the market share captured by the facility (existing or new) is sensitive
to both facility location and attractiveness.

Several approaches to estimating the market share captured by a facility are found in the
literature. Estimation of market share is used by marketers to evaluate a user provided
discrete set of potential sites for the location of a new facility within a matrix of existing
facilities. The site that maximizes the market share captured is selected. It may well be that
the best location for the new facility is not included in the predetermined set of sites. It is
therefore important to find the best location anywhere in a continuous plane. This issue is
not addressed in the literature. It requires the analysis of the market share function. This
paper fills this gap by analyzing the market share function over the study area and identifying
the best location for a new facility anywhere in that area.
The analysis of the market share function also provides the necessary tools for a sensitivity
analysis of both the best location for the new facility and the market share captured by either
a new or au existing facility. Such a sensitivity analysis is made possible by the introduction

Diit all correspondence to: Tanuny Drezner, Department of Marketing, California State University - Fullerton,
Fullerton, CA 92634.

Journal of Retailing, Volume 70, Number 1, pp. 49-64, ISSN 00224359

Copyright 0 1994 by New York University. All rights of reproduction in any form reserved.

49
50 Journal of Retailing Vol. 70, No. 1 1994

of the analysis presented in this paper. Changes in the market share captured and in the best
location are calculated for changes in the attractiveness measures of the new facility.
Huff (1964; 1966) proposed a method for estimating market area (or, alternatively, trading
area) and thus the distribution of the market share among retail facilities. Huffs formulation
states that the probability that a customer will patronize a certain facility (a retail outlet) is
proportional to its floor area and inversely proportional to a certain power of the distance
from it. Huffs estimate of market area is based on the gravity attraction model (Converse
1949; Reily 1931).
In the original Huff formulation, facility floor area serves as a surrogate for attractiveness.
A major improvement on Huffs approach was suggested by Nakanishi and Cooper (1974).
They suggested the multiplicative competitive interaction (MCI) model which replaces the
floor area by a product of factors, each a component of attractiveness. Each factor in the
product is raised to a power. Thus, the attractiveness of a facility is composed of a set of
attributes rather than being the floor area alone. Nakanishi and Cooper’s idea was elaborated
on and applied by Jain and Mahajan (1979) to food retailing using specific attractiveness
attributes. Both papers suggest the evaluation of a user provided discrete set of potential
sites.
A few papers generalize Nakanishi and Cooper’s MCI model to the location of multiple
new facilities. Achabal, Gorr, and Mahajan (1982) proposed to employ a random search
procedure combined with an interchange heuristic to identify optimal and near-optimal sets
of locations. They assume that the number of new facilities is given, and a user provided set
of potential sites is available. Ghosh and Craig (1991) proposed a franchise distribution
model. An expanding franchise seeks to maximize sales while minimizing cannibalization.
They include in their model considerations such as advertising. An extension of the analysis
presented in the present paper to the location of multiple new facilities is suggested for future
research.
Other papers (Hodgson 198 1; Wilson 1976) suggest a variation on Huffs formulation by
replacing the distance raised to a power with an exponent of the distance. This formulation
accelerates the distance decay. It does not change the nature of the solution.
Another popular approach to competitive facility location is based on Hotelling (1929).
The model is based on the assumption that customers patronize the closest facility. It implies
that the facilities concerned are equally attractive. A large body of research is based on this
premise and on Hotelling’s formulation. For a survey of various competitive facility location
models see Ghosh and McLafferty (1987) and Eiselt, Laporte, and Thisse (1993). Drezner
(1994) introduced the concept of varying attractiveness among facilities into the Hotelling
model. It follows that customers do not necessarily patronize the closest one. A distance
differential is calculated based on the quality difference between the competing facilities. It
is suggested that a customer will patronize a better and farther facility as long as the extra
distance to it does not exceed that distance differential.
Another extension of Hotelling’s approach is the location-allocation model. The allocation
of customers is made by the Hotelling’s proximity assumption. Each facility attracts the
consumers that are closest to it. The market share attracted by each facility is calculated and
the best location for the new facilities is then found. The proximity assumption is somewhat
relaxed in hierarchical location-allocation models. These models distinguish between a
limited number of types of facilities thus creating several classes of facilities (rank order of
Optimal Continuous Location of a Retail Facility: Model 51

facilities), each with facilities of similar attractiveness or order. This approach is based on
central place theory (Christaller 1933; Losch 1954; Beaumont 1987). Location-allocation
models select the best location(s) from a predetermined set of potential sites. For a review
see the book edited by Ghosh and Rushton (1987) and in particular the chapters by Beaumont
(1987), O’Kelly (1987) and Church and Eaton (1987).
A few papers suggest different approaches to estimating market share. Durvasula, Sharma,
and Andrews (1992) proposed to incorporate judgmental opinion from managers into the
calculation of the expected market share. An analysis of the market share function is not
provided. Ghosh and McLafferty (1982) suggested a multiobjective optimization procedure
for making retail location decisions in uncertain environments. Several possible future
scenarios are identified and a compromise strategy that attains a high level of goals under
all possible scenarios is selected. These models are also discrete in nature.
In the present paper Huff’s estimation of market share and the best continuous location in
a continuous plane are investigated. Properties of the market share function are established
and the best location for a new facility is found. The analysis employed in the present paper
assumes that the probability of a customer patronizing a facility is proportional to some
constant (either the floor area of the facility or Nakanishi and Cooper’s MCI product) and
inversely proportional to a power of the distance from the facility.
The analysis also addresses the case where some existing facilities belong to one’s own
chain (with the location of one new facility considered). In this case the objective is to
maximize the market share captured by the entire chain rather than the market share captured
by the new facility. Maximization of market share captured by the new facility at the expense
of the existing one(s), i.e., cannibalization, is minimized.

The Model

As is commonly done in location models, the study area is divided into smaller areas and a
demand point is located close to the center of each such small area. Each demand point
represents the customers residing in the small area. The set of demand points covers the
whole study area. The following definitions are used in the mathematical formulation:

n The number of demand points (each demand point represents a small area around it)
Bi The available buying power at demand point i for i= 1, . . , n (the total buying
power of all customers residing in the small area represented by that demand point)
k The number of existing competing facilities
C The number of existing facilities that are part of one’s own chain. The first c out of
k facilities are assumed in this category. c can be as low as zero and is bounded by k
dij The distance between demand point i and existing facility j. i = 1, . . . , n; j = 1 , . . . , k
4 The distance between the new facility and demand point i
sj The floor area of facility j (or the MCI multiplicative product) forj = 1, . . , k
S The floor area of the new facility (or its MCI multiplicative product)
h The power to which the distance is raised.
52 Journal of Retailing Vol. 70, No. 1 1994

The market share attracted by facility j, Mj, before a new facility is introduced, is according
to Huff (or Nakanishi and Cooper 1974):

n
2L
&fj$Bi -$
i=l (1)

The market share M attracted by a new facility opened in the area is:
s
2
M=iBi ;
i=l

Before analyzing the problem of finding the best location anywhere in the plane, Huff’s
model is generalized to allow some facilities to be part of one’s own chain. As will become
apparent, such an extension of the model allows for more flexibility in modeling practical
situations but does not require more computational effort. One can always apply the model
to the particular case in which none of the facilities belong to one’s own chain.
When some existing facilities are part of one’s chain, the objective is to maximize total
chain profit. Then, the objective to be maximized is the total market share captured by all
the facilities in the chain including the new facility. Suppose that the first c facilities belong
to one’s chain. The total market share attracted by the chain is T. If no existing facility belongs
to one’s chain then T = M. T, the total market share, is a general expression of the market
share captured by the chain:
(3)

‘i’=iBi
i=l

Note that if c = 0 (i.e., there are no facilities that belong to one’s chain), the sum in the
numerator vanishes, Equation 3 is reduced to Equation 2, and T = M.
The problem of finding the best location in the plane that maximizes the total market share
captured T by Equation 3 is now investigated. A sequence of algebraic manipulations is
performed to simplify Equation 3.
Note that the last sum in the denominator in Equation 3 can be written as:

Substituting this identity into the numerator of Equation 3 and performing simple algebraic
manipulations yield
Optimal Continuous Location of a RetailFacility:Model 53

(4)

Separating the “1” from the other terms in Equation 4 yields T = T$= I Bi - F. The sum of the
Bi’s is the total buying power of all customers in the area. T is the total market share captured
by the chain. Therefore, F represents the market share not captured by the chain, and is
defined by:
k

F=CBi (S)
k
i=l

Maximizing T (the total market share captured by the chain) is equivalent to minimizing F
(the market share nor captured by the chain). Consequently, the problem becomes a
minimization of F.
Multiplying the numerator and denominator of Equation S by $ yields:

All the values in Equation 6, except di, are given parameters. Therefore, the known values
can be compiled into two parameters ai and bi defined as follows:

(7)

Then F by Equation 6 is much simplified:

(8)

Equation 8 is much simpler than Equation 3.

54 Journal of Retailing Vol. 70, No. 1 1994

THE MINIMIZATION OF F

The concepts of convexity and concavity of functions are very important in finding the
optimal solution of a function (Zangwill 1969). Concave functions have a unique maximal
point whereas convex functions have a unique minimal point. If a function is concave, then
its three-dimensional plot will look like one “hill”. If it is’convex, it looks like one “crater”.
If a functionAX) is concave then --f(x) is convex and vice versa. Functions are either concave
or convex or neither. A search for the maximal point of a concave function can be started at
an arbitrary point, and as long as the procedure “climbs up the hill”, the best location must
be found because the top of the hill will be reached. If the function is not concave, the function
may contain several “hills”. The highest “hill” represents the global maximum-the optimal
location. All the hilltops are local maxima (one of which is the global one). If amaximization
procedure is started at an arbitrary point and proceeds by going up the hill, a local maximum
will be reached, which may or may not be the optimal location. The customary way to handle
these situations is to repeat the search from many starting points ending at several different
local maxima, and select the best one found. If the process is repeated enough times, the
global maximum is likely to be reached.
The function T in Equation 3 is not concave, consequently (because F is equal to the
difference between a constant and -T) the function F in Equation 8 is not convex. This is
because a concave function can have only one local maximum whereas in the computational
experimentation section (Table 2 below), many local maxima of the function T exist for an
example problem. See also Figure 2 where many “hills” in the objective function T are
visible. The search is therefore repeated from many starting points ending at several different
local maxima. The best local optimum (which is the global optimum-the best location) has
a high likelihood of being generated as a terminal point of the algorithm. The algorithm
below terminates at a local optimum and is repeated many times for randomly selected
starting points.
The commonly used procedure for the solution of similar location problems is derived
from the Weiszfeld (1937) procedure. This procedure was designed to solve the minimiza-
tion of the total weighted Euclidean distances. A complete discussion of the Weiszfeld
algorithm is available in Love, Morris, and Wesolowsky (1988). This is an iterative
algorithm. An initial estimate for the best location is arbitrarily generated and the algorithm
improves it by calculating a better estimated location. Successive improvements of the
estimated location are continued until no significant improvement is detected. This sequence
of estimated locations converges to a local minimum.
Following the Weiszfeld approach, Equation 8 is solved as follows: the derivatives of F
by x and separately by y are equated to zero to yield (note that -&ii=? and by the chain
I
rule $(di) = %(d,) $d, and similarly for y):
n n
CWi(X,Y)(X-xd=O; ~WikYNY-Yi)=o
i=l i=l

where
Optimal Continuous location of a Retail Facility: Model 55

a.&2 (10)
WC&Y) = fori= 1,. . ,n.
[ 1 + bfd ;(x, y)12

h was canceled in Equation 9 and therefore is omitted from Equation 10. Following
Weiszfeld’s idea, x and y are implicitly solved in Equation 9 yielding:

i Wi(A Ybi i WC% Y)Yi

x=
i=l
; y=
i=l (11)

i Wik Y) i Wi(% Y)
i=l i=l

Based on Weiszfeld, the following iterative procedure is constructed:

Algorithm for the Location Solution

1. Begin with a starting point (#‘),y@)) which serves as a first estimate of the best location
(first iterate). Set the iteration counter r to zero.
2. Calculate the next iterate (location) by the following formula (based on Equation 11):
n n
C Wi(X('),$r))Xi C W&X('),y(‘))yi
,p+i) = i=l ; y(r+i) = i=l (12)
n n

C W&X('),y”‘) C W&X('),y’“)
i=l i=l

where w&y) are defined by Equation 10.

3. If the distance between the consecutive iterative points (x(“+‘),y(*l)) and (x’s, y(‘)) is
less than a pre-specified small tolerance E, stop the iterations and accept (x’“‘), y(‘+‘))
as a local minimum.
4. Otherwise, increase the iteration counter by one so that the point (x’“‘), y(‘+‘)) (which
was calculated by Equation 12) becomes the new point (x’s, y(‘)) for the next iteration.
5. Return to step 2 for another iteration.

Since there may be many local minima to the problem, the algorithm ends at a local
minimum that is not necessarily the best location. However, one of these local minima is the
best location. One should therefore apply the algorithm several times using different starting
points in step 1, and then select the solution that captures the largest market share. Since the
algorithm is highly efficient computationally, it can be applied one hundred times in a very
short computation time.
56 Journal of Retailing Vol. 70, No. 1 1994

TABLEI

locations of Existing Facilities

Facility No. x-Coordinate y-Coordinate

1 7 1
2 5 5
3 3 3
4 3 9
5 1 7
6 9 2
7 8 8

COMPUTATIONAL EXPERIMENTATION

This section consists of two parts: (1) Finding the location of a new competing facility using
the proposed procedure. An optimal location solution in the plane is found for a facility of
agiven area (or MCI coefficient). (2) Testing the sensitivity of the location and the sensitivity
of the market share captured to the new facility’s coefficient.
Since the algorithm ends at a local optimum that is not necessarily the global optimum,
the terminal solutions of the algorithm are checked. The location set of the local minima and
the market share captured when a new facility is located at each are found.

10
1. . . . . . . . . .
9
. l F ‘ * l

8
. . . l
El .

7 - ‘py
. L . . . . .
6 t
. l . .

5
. . . 0
Orzl’O + ’ *
0 0 . . . .

4 t
I. l 0 Q .O . . . . .

3
l l
FL l . . l . l

. El .
2
. . . . . . . .
.q .
1
. l l . . . . .
0 I I I I I I I 1 I I

0 1 2 3 4 5 6 7 8 9 10

Figure 1. Local and Global Optima for the Example Problem

Notes: l, A demand point; q-a , an existing facility; o, a local optimum; r, the global optimum
Optimal Continuous Location of a RetailFacility:
Model 57

The experiments were conducted for a hypothetical problem. Seven existing facilities each
of an area (or MCI product) Sj = 1 are located in a 10 by 10 miles area (Table 1 and Figure
1). For simplification purposes, 100 demand points are arranged on a grid, each assigned a
buying power Bi = 1 for a total buying power of 100. (Figure 1 also depicts all the local
maxima found by the algorithm.) None of the facilities is assumed to belong to one’s chain
(i.e., c = 0). The power h = 2 was used to raise the distance.

EXPERIMENT 1

In this experiment the best location for a new facility is found anywhere in the plane. The
new facility has a comparable size of S = 1. The set of local optima for the location problem
is found. The Weiszfeld-based algorithm ends at a local optimum that is not necessarily the
optimal solution. The algorithm requires a starting point for the iterations. Its solution
depends on the selected starting point. Therefore, many starting points were used. The set
of the algorithm termination points is the set of local optima. If enough starting points are
tested, the best location (global optimum) will be one of these terminal solutions. The
algorithm was run 100 times, each with a randomly generated starting point in the square 0
5 x,y I 10. The local optima obtained by the algorithm are listed in Table 2.
Table 2 lists the coordinates for the 11 different solutions obtained by the algorithm as
well as the market share captured by the new facility at each. Figure 1 above depicts the
location of these local optima. In Figure 2, the three-dimensional surface of the objective
function is depicted. The graph shows only the area where the market share is above the
value of 12. The eleven local optima are clearly identified on the graph. There are five local

TABLE 2

Local Optima for 100 Starting Points

Local Coordinates
Local Opti- MarketShare No. of Times
mum Number x Y Captured Encountered

1 5.59 5.54 12.93 12

2 6.61 5.53 12.85 37
3 5.59 4.54 12.81 9
4 4.56 5.54 12.69 11
5 4.54 4.51 12.60 3
6 3.50 3.50 12.53 2
7 3.49 2.55 12.50 7
8 2.55 3.49 12.50 3
9 2.56 2.56 12.46 11
10 4.75 3.59 12.35 3
11 3.57 4.54 12.31 2
100
58 Journal of Retailing Vol. 70, No. 1 1994

Market
Share

Figure 2. A Three-Dimensional Plot of the Market Share’s Local Maxima

optima on the “right” and four local optima on the “left”. Two local optima in the “valley”
between the two “ranges” are more difficult to identify. A comparison with Figure 1 and
Table 2 is illustrative. The local optima in Table 2 are listed in descending order of the market
share captured such that the first point is the best location for the new facility (the largest
market share captured). The number of times (out of 100 applications of the algorithm) that
each local optimum was encountered by the algorithm is listed in the last column. The
number of times encountered indicates the probability that a particular local optimum will
be reached by the algorithm when starting at a randomly selected starting point. The global
optimum was encountered 12 out of one hundred times, about once in eight times. Note that
the most frequently encountered solution was the second best solution (encountered 37
times). One should run at least eight starting points to have a reasonable chance of landing
at the global optimum.
The expected market share captured by a randomly located new facility in the area was
simulated separately and its average was 10.45. It was also found that the market share
captured by any of one hundred randomly selected locations ranged from 4.60 to 12.84. In
contrast, the algorithm ended in 11 different local optima that captured a market share
ranging from 12.31 to 12.93 (Table 2). This latter range of market share is significantly
higher than the market share range captured as a result of a randomly selected location for
the new facility.
Optimal Continuous Location of a Retail Facility: Model 59

TABLE 3

Distribution of Market Share with the

New Facility
Facility Captured Original Market Lost Market
Number Market Share Share Share

1 11.11 12.24 1.13

2 12.33 16.54 4.21
3 15.75 17.49 1.74
4 11.44 12.77 1.33
5 11.68 12.78 1.10
6 10.60 11.75 1.15
7 14.15 16.42 2.27
new A 1293 0.00 o.00
100.00 100.00 12.93

The redistribution of market share among the facilities following the location of the new
facility at its best location (x = 5.59, y = 5.54 according to Table 2) is summarized in Table
3.
The market share captured by the new facility is 12.93 as in Table 2. The second column
in Table 3 (Captured Market Share) represents the market share captured by the existing
facilities following the introduction of the new facility. Each of the existing facilities loses
part of its market share to the new one. The market share lost by each of the existing facilities
is depicted in the last column of the Table. As expected, the total market share lost by the
existing facilities comprises the market share captured by the new one (12.93). Note that
existing facility #2 stands to lose the largest market share. If an increase in the buying power
is expected (and therefore an increase in the total size of the market) due to the introduction
of the new facility, it should be reflected in the Bi’s in the data.
Each of the local optima is the best solution in its own neighborhood. The global optimum
is the best local optimum for the whole area and thus the best solution. Note that the local
optima are quite distinct and therefore a list of potential prespecified sites can easily miss
them.

EXPERIMENT 2

The sensitivity of the market share captured and the sensitivity of the optimal location of
the new facility to its coefficient were investigated. Table 4 depicts the optimal locations
and the market share captured at each location for a new facility whose coefficient (square
footage or MCI coefficient) ranges from 0.1 to 3.0. The sensitivity of the market share to the
new facility’s coefficient is well illustrated in Table 4 and is depicted in Figure 3. It is
60 Journal of Retailing Vol. 70, No. 1 1994

TABLE 4

Market Share and location of the New Facility as a

Function of Area (or MCI)
Location Coofdinates

New Facility's
Area iorMCI) Market Share x Y
0.1 2.94 1.48 1.48
0.2 4.38 1.50 1.50
0.3 5.65 7.55 5.45
0.4 6.88 7.52 5.43
0.5 8.00 7.44 5.42
0.6 9.06 7.27 5.43
0.7 10.08 6.84 5.50
0.8 11.04 6.77 5.51
0.9 11.99 5.59 5.54
1.0 12.93 5.59 5.54
1.1 13.84 5.59 5.53
1.2 14.71 5.58 5.51
1.3 15.55 5.57 5.50
1.4 16.36 5.55 5.48
1.5 17.15 5.54 5.46
1.6 17.92 5.52 5.44
1.7 18.67 5.50 5.41
1.8 19.39 5.47 5.38
1.9 20.10 5.44 5.35
2.0 20.79 5.41 5.31
2.1 21.47 5.38 5.27
2.2 22.13 5.34 5.22
2.3 22.77 5.30 5.17
2.4 23.41 5.26 5.12
2.5 24.02 5.22 5.08
2.6 24.63 5.18 5.05
2.7 25.22 5.15 5.03
2.8 25.80 5.12 5.01
2.9 26.37 5.09 5.00
3.0 26.92 5.07 4.99

interesting that a thirty-fold increase in the Facility’s coefficient results in a nine-fold

increase in its captured market share.
The sensitivity of the location of the new facility to its coefficient is illustrated in Figure
4. The figure is a graphical representation of the x,y coordinates provided in Table 4. To
interpret the figure, one should compare it with Table 4. Figure 4 depicts the market area (10
by 10 miles). For a small new retail facility, the best location is at the lower left corner of
the market area. As the facility’s coefficient increases, the best location for the new facility
Optimal Continuous Location of a Retail Facility: Model 61

30 l-

25 --

20 --

Market Share 15 -_

10 --

5--

0-

0 05 1 15 2 25 3

Facility Area (or MCI Coeffkient)

Figure 3. Market Share as a Function of Facility’s Area (or MCI)

10

Y 5

1
0.’ : :

0 1 2 3 4 5 6 7 8 9 10

Figure 4. Location of the New Facility as a Function of Its Area (or MCI)
62 Journal of Retailing Vol. 70, No. 1 1994

“moves” to a point right of the center of the market area (approximately x = 7.5, y = 5.5). As
the coefficient continues to increase, the best location (located approximately at x = 5.5, y =
5.5) drifts left toward the center of the market area and for the largest coefficient depicted
(3.0) the location is very close to the center (x = 5, y = 5). Clearly, the best location for the
new facility is dependent on its square footage.
As is evident from Figure 4, the location of the new facility “jumps around” as S (the area
or MCI product) increases. The reason is that there are several local optima for any given S.
A graphic representation of the multiple local optima for S = 1 is depicted in Figure 2. A
similar market share is captured at each local optimum (as found by the computer program).
For a small S the local optimum at the lower left corner is better than the one closer to the
center and thus is the global optimum. As S increases, the market share captured changes at
all local optima, but the one closer to the center increases more rapidly. For some S, between
0.2 and 0.3, a larger market share is captured closer to the center. The effect of this
phenomenon is that the best location as a function of S seems to abruptly “jump” from the
lower left corner to a point closer to the center when S increases from 0.2 to 0.3.

EXPERIMENT 3

If some existing facilities belong to the new facility’s chain, the best location and largest
market share captured by it are different from these values when no existing facility belongs
to the chain. In this experiment these differences are explored. The same problem given in
Table 1 is used for the analysis. The best location for the new facility and the market share
captured when none of the existing facilities belong to the chain (termed no-chain best
location and no-chain market share, respectively) serve as a frame of reference for compari-
son.
The problem is solved seven times. Each time a different existing store is assumed to be
part of the new facility’s chain. This existing facility is called the selected facility. Seven
different solutions for the best location of the new facility and their corresponding market
shares for each selected facility are given in Table 5. The best location for the new facility
that maximizes the total market share captured by the chain (the selected facility and the new
facility) is calculated. The original market share captured by the selected facility (as reported
in Table 3, column 3) is then subtracted from the total market share captured by the chain.
This difference is the additional market share captured by the new facility. In Table 5, the
best location and the additional market share captured by the new facility for each of these
seven cases, one at a time, are reported. For comparison, the no-chain results (when no
existing facility belongs to the chain) are reported in the last row of Table 5. As expected,
the additional market share captured in the chain case is lower than the no-chain market
share. This is because the new facility attracts market share from all existing facilities. If an
existing facility belongs to the chain, the market share captured from that facility is not
counted toward the additional market share captured.
Examination of the results in Table 5 and comparison with Figure 1 show that if the
selected facility is far from the no-chain best location, the effect on the best location is small.
For example, the best location for the new facility, when facility #l is the selected facility,
Optimal Continuous Location of a Retail Facility: Model 63

TABLE 5

Additional Market Share When One Facility Belongs to One’s Chain

The Chain’s Existing Facility The Chain’s New Faci@

Location Best Location Additional

Market Share Number of
No. X X Captured Local Optima
Y Y
7 1 5.54 5.62 i 1 .a2 7
5 5 2.51 2.51 10.67 4
3 3 6.90 6.03 11.43 1
3 9 5.61 4.46 11.81 9
1 7 6.86 5.36 11.97 7
9 2 4.49 5.56 11.82 10
a a 2.54 2.54 11.72 a
none 5.59 5.54 12.93 11

is very close to the no-chain best location. The optimal location of the new facility tends to
be far from the selected facility. The two facilities that belong to the same chain should be
located apart from one another such that they will not compete for the same customers but
rather compete with facilities of other chains. For example, when existing chain facility either
#2 or #7 are selected, the best location for the new facility is far from the no-chain best
location as well as from the selected facility. In other words, the best location and the market
share captured by a new facility are sensitive to the existence of a member facility. They will
vary so as to maximize chain’s market share rather than new facility’s market share.

Acknowledgment: This paper is part of a Ph.D. dissertation in Urban, Technological, and

Environmental Planning, The University of Michigan (1993). I would like to thank my
committee members Professors D. Capozza, M. Dewar, J. Levine, and especially the chair
Professor J. Nystuen for their help and support.

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Submitted February 1993; Revised: August 1993, December 1993