A convenience model of spatial competition

Abstract

We adapt Hotelling's standard model of spatial competition to include the retailing of convenience goods. Consumers do not make special purpose trips to acquire goods like gasoline or groceries, but instead buy them as the need arises in the course of their daily lives. We analyze three versions of the convenience model of spatial competition: first, a restricted model in which consumers can't go out of their way to purchase the good. Second, an unrestricted model in which consumers are allowed to change their route to purchase a good. Third, the standard Hotelling model. We solve the restricted model analytically to investigate some simple firm equilibrium behaviour. Solving the second and third models via discrete approximations allows us to analyze price and location competition. We find the convenience specification of the model results in lower expected prices for the consumer, lower profits for firms, and more competition relative to the Hotelling model.