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Joint pricing and location decisions in a heterogeneous market

Nafiseh Sedghi, Hassan Shavandi and Abouee-Mehrizi, Hossein

European Journal of Operational Research, 2017, vol. 261, issue 1, 234-246

Abstract: In this paper we consider the problem of joint location and pricing optimization for a firm in a heterogeneous market producing a single product. We assume that customers have a different willingness to pay for the product. We consider two classes of customers who are not uniformly distributed in the market and develop an analytical framework to determine the relationship between the optimal price and location of the firm. We demonstrate that the optimal price and location are closely related to each other, and thus there is a need for simultaneous optimization of the price and location. We provide both analytical and numerical results to illustrate the impact of transportation cost and the level of heterogeneity on the firm’s strategic decisions. Our results show that simplifying the analysis of such markets with a uniform demand assumption and a homogeneity of customers may reduce the firm’s profit significantly.

Keywords: Location; Heterogeneous customers; Non-uniform market; Pricing (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ejores:v:261:y:2017:i:1:p:234-246