Modeling the retail system competition

Abstract

The retail system is a competitive environment and its transformations have a relevant socio-economic impact. In this context, it is important to represent customer-store interactions, and, to this end, literature mostly proposes logit models. It is well-known that these models present some behavioral and structural anomalies (e.g., the Independence-from-Irrelevant-Alternatives) making them hardly applicable to retail system analysis. In this paper, we show that even some alternative approaches (e.g. Nested-logit or Paired-Combinatorial logit models) do not suitably represent the competition between retail stores, and we present a new modeling framework. It aims at overcoming the above limits by two cooperating logit-based models: the first one analyzes customer-store interactions; the second model uses the interaction information to evaluate the impact of some major transformations. The framework has been integrated in a decision support system and used in real-life cases to determine the impact of new stores in some Italian regions