MULTI-OUTLET FIRMS, COMPETITION AND MARKET-SEGMENTATION STRATEGIES

This paper examines horizontal differentiation between outlets serving a market characterized by a geographic dimension and a quality dimens ion. It departs from the bulk of the location literature by assuming t hat some firms own several outlets and serve the market from these mul tiple locations. The paper contrasts a strategy of homogeneous store q uality with a strategy of heterogeneous quality. For both strategies, competition between multi-outlet firms is articulated around two main forces whose interplay controls the geography and value offering of th e industry. The reservation price of consumers for shopping at less th an ideal outlets pushes outlets apart, whereas the probabilistic natur e of outlet patronage fosters the aggregation of outlets. The relative strength of each force changes with the conditions of the market. Sim ulation results also highlight the impact of market strategies on comp etitive behavior. The constraint of the same value position has little or no influence on industry-wide differentiation for reservation util ities that are large or small enough. For intermediate reservation dis utilities, the constraint serves to preserve the geographic spread of outlets until firms are better off aggregating both in value and geogr aphically.