Research On Competitive Facility Location With Logit Utility Function

Most location decisions are strategic and they are the basis of sustainability and the core capability of an enterprise. Competitive location is one of the most popular areas in recent years, which is about how to attract more customers’demands and maximize objective. It has been widely used in several areas, such as manufacturing, logistics and business, especially retailing and service industries.Competitive location has attracted the attention of researchers for a long time and now has become a focus of research. It is found in the competitive location literature that the main objective of competitive location is to maximize market share. They assume that demand is constant and customer will chose the service facilities in accordance with their attraction. But in reality, the market demand may expand as the facilities closer to customers, the overall level of service improvement and other factors. Besides, different customers have different preferences in the choice of facilities. This paper inherits existing research of the competitive location, considering the location cost and market demand expansion, using Logit utility function to describe the customer preference and is introduced into the competitive location.Firstly, the paper introduces the research background and methods, reviews the location problems, competitive location problems and the applications of Logit utility function. Secondly, the Logit utility function is introduced into the competitive location to describe the probability of choosing facilities and the paper put forward the way of solving the Logit fitting parameters. On the basis of previous research, this paper defines the function of cost and market expansion, and then establishes a single facility location model with the goal of maximizing profits with market demand fixed and market expansion, and then the two models are extended to competitive multi-facility facility location. Finally, this paper gives the plant growth simulation algorithm to solve the competitive location and programmed by MATLAB R2013a. The competitive location model is applied to a virtual retail outlets location. Through a small numerical example, it is proved that the plant growth simulation algorithm does not depend on the selection of the initial solution and it can quickly solve the model. The numerical example shows that:(1) The variations of market demand expansion and utility factors affect the optimal site and profits. Therefore, the enterprise should first define the factors of affecting the utility of facilities. And then investigate the customer expectations of each factors. Only in this way can make the facility property such as the facility’s service levels, prices, shopping environment and business scale in line with customer requirements, but also it can guide enterprise to attract more customers with least cost.(2) If the enterprise understands the trend of market demand expansion, it will have a comparative advantage in the "carve up" demand expansion. So it is important to understand the trend of market demand expansion, which ensures a comparative advantage in the "carve up" demand expansion.