Dynamics and Stability in Retail Competition

TL;DR

This paper models the dynamics of retail competition considering oligopolistic, multi-store, and economies of scale features, analyzing stability and chaos in a multi-market Cournot-Nash framework.

Contribution

It introduces a comprehensive dynamic model incorporating economies and diseconomies of scale in multi-market retail competition, analyzing stability and chaos.

Findings

Multi-store retail competition is more unstable than small businesses.

Scale parameter influences stability significantly.

Number of markets affects the stability of the system.

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