Exercise: Spatial Competition
Wal-Mart ("Big") and Value
Hardware ("Small") selling similar products are
considering opening a new store in one of four towns located on a given
highway somewhere in Kitsap County. The total population of the four towns
is 50,000 (as distributed on the graph below); the towns are equally
distant from each other (10 miles).
Distribution of Total Population ( = Market):
A Town B Town C Town D Town
______ ______ ______ ______
| | 10 miles | | 10 miles | | 10 miles | |
| 20%|----------| 20%|----------| 40%|----------| 20%|
|____| |____| |____| |____|
Expecting community opposition and/or competitive responses, the two
companies are keeping their plans secret until it is too late to respond
to the competitor's eventual location disclosure.
Where (in which of those 4 towns) would you expect the two to locate
their respective store given the following, generally known information:
- If Wal-Mart's store is located closer to a town, it will capture 80%
- If Value Hardware is nearer, then the Walmart will capture 40%.
- If both
companies' stores are equally distant, including being located in the same
town, then Walmart will capture 60%.
- set up the matrix of the "game" (fill in only that part of the table
which you feel is needed to answer the question and justify your answer.
See example of such a combined payoff
- find optimal strategies for the two competitors and interpret your
- change the above scheme so that it expresses some distance elasticity
- venture into an educated guess as to the (new) answer to the changed
question (without establishing a detailed pay-off table)
- briefly discuss the social (welfare) implications of the cases with
and without distance elasticity of demand.
- Would the locational results have been different had Walmart and Value
known about their respective plans earlier?
Geography 450 Syllabus ||
Econ & Bus Geog ||