Dynamics and Stability in Retail Competition

Abstract

Retail competition today can be described by three main features: i) oligopolistic competition, ii) multi-store settings, and iii) the presence of large economies of scale. In these markets, firms usually apply a centralized decisions making process in order to take full advantage of economies of scales, e.g. retail distribution centers. In this paper, we model and analyze the stability and chaos of retail competition considering all these issues. In particular, a dynamic multi-market Cournot-Nash equilibrium with global economies and diseconomies of scale model is developed. We confirm the non-intuitive hypothesis that retail multi-store competition is more unstable that traditional small business that cover the same demand. The main sources of stability are the scale parameter and the number of markets