Business and Economics
How Local Is Local Competition? An Analysis of Spatial Competition in the Retail Market
Ari PramonoHarmen Oppewal
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Analyse the competition,
where ..... • The demand is distributed over space
and ....• The consumer is moving across the space
and therefore…• The patronage is restricted by the consumer’s
spatio-temporal constraints
Objectives
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Research Questions.....
1. What is the actual role of spatial structure (i.e., clustering and spatial differentiation) in determining the spatial substitutability of alternatives?
2. What about the role of the non-spatial attributes?
Brand NFRThe format….
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Research Questions (cont’d)
3. How do consumers’ different decision process modes affect the spatial substitutability of alternatives?
PLANNED (CHOICE) MODE
• coordinated with regular activity• patronage is based on past information, experimentation and habitation
• Compensatory decision on a predetermined choice set
Ad-HOC (SEARCH) MODE
• Spontaneous decision• Sequential exposure of alternatives
(Kitamura and Sperling, 1987)
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Conceptual Model
Spatial Competition
Distance
Contiguity
Non spatial differentation
Spatio temporal Limitation(Peak hours – Off Peak)
Behavior modes(Choice – Search)
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Modelling Steps
Modelling Individual
‘on-the fly’ Choice
OD-Demand Modelling
Perceived Substitutability modeling
Competition Modelling
𝑸𝒌= 𝑴𝒐𝒅.𝑷ሺ𝒌ȁ�𝒐,𝒅ሻ𝒎𝒅=𝟏
𝒏𝒐=𝟏 𝑴𝒐𝒅=𝑻𝒐.𝑨.𝑾𝒅𝜷.𝒆−∅.𝒅𝒊𝒔𝒕𝒐𝒅
𝐶𝑖𝑗 = σ σ 𝑴𝒐,𝒅.𝑪𝑺ሺ𝒊,𝒋ȁ�𝒐,𝒅ሻ𝒏𝒅=𝟏𝒏𝒐=𝟏 σ σ 𝑴𝒐,𝒅𝒏𝒐=𝟏𝒏𝒅=𝟏
Cij = α + β1.distanceij+β2.contiguityij+β3.Quality differenceij
CS(i,j)=1 if and j are most likely to be considered simultaneously, and 0 if not
MODELLING THE COMPETITION OF GAS STATION
Study Example
28th February 2011Presentation title 7
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Survey Method : Interception of 287 motorist at sampled gas stations Data : Revealed Choice Stated Choice (Hypothetical situation ) Trip data (O-D, Tank Level)
Study Area : City of Bandung, Indonesia
MNL Planned Choice Search
Coeff t-stat Coeff t-stat OTF t-stat
Cons 1.447837 5.73 1.536715 5.98 -0.1018341 -0.2
cons2 -12.72077 -0.02 -15.99286 -0.02 -1.544937 -0.6
Detour -0.0006438 -9.24 -0.0005171 -6.14 -0.0002847 -4.84
Quality 0.0622467 1.82 0.2163645 3.59 0.001141 0.04
log (dominance) -0.7883585 -5.03 -0.7952468 -5.07 -1.202707 -4.61
detour x off peak -0.0003127 -2.25 -0.0002737 -2.01 -0.0001101 -1.17
quality x off peak -0.0362741 -0.66 -0.0110604 -0.2 0.0186984 2.03
dominance x off
peak
0.1240502 0.49 0.12658 0.5 -0.1208099 -0.29
detour x low tank 0.0001003 0.92 0.0000681 0.66 -0.0000653 -0.59
quality x low tank 0.0161144 0.3 0.0009624 0.2 -0.023841 -3.54
dominance x low
tank
0.3653381 1.52 0.3698403 1.53 0.650738 1.44
threshold (𝜃) 18.08971 3.27 1.076813 1.82 𝜃 x quality -0.1988119 -3.19 -0.0045611 -0.69
FOS 1.092104 3.82
FOS x tank 0.2120251 0.44
FOS x off peak -0.885995 -2.03
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Importance of Station Quality only in two -stage
Location is more important in search
In off-peak hours motorists are less concerned about location
In off-peak hours Quality becomes slightly more important in search mode
But if the tank is low ... they don’t care about quality
Evidence of Feasibility Set
Motorists stick to their “mental map”(especially in peak hours)
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Step-1: On-the-fly Choice Modelling
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Step-2 : OD-Demand Modeling
Sales Map Demand at origin Map
• The sales is more evenly distributed than the demand• The demand from the high concentrated areas are not realized locally, but
in the outlet closer to the central city.• The gas station sales is more affected by commuter rather than local
market
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Step-3 : Perceived Subsitutatibility Model (sample result)
Competing stations (Planned Choice)Competing stations (Ad Hoc Search)
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Choice Search
Peak Off Peak Peak Off Peak
constant -0.10856a -0.04139a 0.01962 0.01471
-5.60 -4.72 1.15 1.15
distance (km) -0.00021 -0.00011 -0.00030b -0.00023b
(dij) -1.16 -1.31 -1.85 -1.85
Contiguity -0.00006 0.00003 -0.00001 -0.00001
(adjij) -0.09 0.09 -0.01 -0.01
Mean Quality
Index
0.00139a 0.00053a -0.00011 -0.00009
(Qij) 6.20 5.26 -0.58 -0.58
Step-4 : Spatial Competition Modelling
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Conclusions Substitutability among spatially distributed firms in on-the fly situations
is spatio-temporally dynamic and heavily affected by the consumers’ behavioural modes.
The spatial configuration of the competing firms plays different roles in determining the firm’s substitutability (or competition) depending on the behavioural modes of the consumers.
In Choice mode, the firms’ spatial substitutability patterns are less contingent on the spatial structure (proximity and contiguity) and more depending on the non-spatial attractiveness.
In the situation where consumers are more likely to conduct Ad-hoc Search behaviour, the firm’s spatial substitutability patterns will be more affected by the spatial structure. Therefore the highest competition will come from the local (closest) rivals.
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