An economic analysis of convenience-store location

This paper is concerned with convenience stores, and analyses the location (i.e. the distance between two neighbouring stores) and size of these stores, which are operated by one or two large retail companies. In order to maximise its profit, a company selects as its decision variables the distance between two neighbouring stores (or n, the number of its stores located within a given linear market area of fixed length N) and the size of an individual store. The outcomes of the monopolistic and duopolistic equilibria are compared with the 'socially optimal' outcome. Such solutions are dependent on the reservation price of the good held by consumers, the marginal supply cost of the good, the transport rate and the maintenance cost of an individual store. After the analytical presentation, certain numerical simulations are given, including a sensitivity analysis with regard to the transport rate. A large discrepancy between the equilibrium and the optimum is shown to exist.