Study On The Location And Price Competition Of Two Retailers With The Product's Costs Differentiation

Since the Hotelling model was proposed in 1929, Hotelling model and its expansion model have made a great contribution to the development of the society,such as the formation of logistics park, hotel construction, the game between banks and their differences of service and so on. Existed studies have extended the original Hotelling model to the product cost differences, but most of them are generally limited to the competition between the two conventional retailers. In addition,expansions of consumer demand are also oppositely less. Therefore, it is of great theoretical and practical significance to study on the location and pricing strategies of the two retailers under the product's costs differentiation and market division. First of all, based on the Hotelling model, this paper extends the Hotelling model under the product's costs differentiation by using the utility theory and game theory and other method. Secondly, this article expands consumer demand as elastic demand(The distance and product prices are introduced into the elastic demand function), the result proves that Aspremont et al.(1979) conclusion is a special case of this paper.The results showed that: First, in the case of competition between the two traditional retailers(For the convenience of summarized, this paper defines the product cost of offering free shopping cart's retailer as ncc02?): 1) when the cost difference is in a certain range(equilibrium exists), the profit of the retailer with the advantage of the product cost will be higher than the profit of the retailer with the relative disadvantage of the product cost; 2) the two retailers' location and pricing decisions will be affected by the product cost differences; 3) the physical retailer with the relative disadvantage of the product cost can narrow the gap with competitors, or even surpass its competitor through selecting better suppliers,optimizing purchasing channels and other ways( If the product cost of offering free shopping cart's retailer is at a disadvantage, the retailer also be appropriate to adjust the grid frequency to improve their status). Second, in the last two competition, retailers should be based on market research to determine the correlation coefficient values(such as consumer'spreference for online shopping, shipping costs borne by consumers and influence coefficient of product price on consumers' purchase quantity and so on) to make decisions. Only in this way, retailers can make more favorable decision on their own.