Bilkent University Department of Industrial Engineering
Abstract:This thesis examines the retail location problem on a Hotelling line in two different settings: a decentralized system in which two competing retailers simultaneously choose the locations of their own stores, and a centralized system in which a single retail chain chooses the locations of its two stores. In both settings, the stores procure their products from a common warehouse and each consumer purchases from the closest store. The retailers in the decentralized system want to maximize their individual profits determined by the sales revenue minus the storage cost and the transportation costs for replenishment and consumer travels. The retail chain in the centralized system wants to maximize the sum of the two individual profits. Transportation and storage costs depend on not only fuel and energy consumption but also carbon emission. In the decentralized system with deterministic demand, we establish that both retailers choose the same location in equilibrium at high margin markets. Numerical experiments provide further insights into the location problem: The retail chain chooses different locations for its stores at optimality in all instances. However, under low transportation costs, the retailers in the decentralized system choose the same location in equilibrium. As the consumer transportation costs increase, the stores are located further away from each other towards their respective consumer segments, converging to the centralized solution. The total amount of carbon emissions is always greater under competition due to high emission from consumer travels: Carbon penalty is more effective for consumer travels than for replenishment in reducing emissions.
