Dealerships Location Choice in the Spokes Model

Most manufacturers are not involved with direct sales to consumers and sell their products through dealers and distributors. Determining the optimal location and number of dealerships to provide a service or product is one of the most important stages of firm's planning and is of utmost importance. The available location choice models are based on simplified assumptions such as linear city and one or two firms. The main objective of this paper is theoretical modeling of dealerships location and expansion of location choice models in such a way that its assumptions are closer to reality and could provide the necessary conditions for selection of optimal number of dealerships and optimal distribution of their location. For this purpose, Chen and Riordan (2007) and Lijesen and Reggiani (2013) models are used. The results indicate that the optimum number of dealers is a function of the number of streets, reserve price of consumers for each unit of goods, transport costs, the number of consumers located on every street and costs for creation dealership. Based on the results, if the costs for creation dealership are relatively high and transport costs is relatively low, then monopolist will agree for creation of a dealer on the city center and several dealers in the margins. In contrast, if the number of consumers located on every street is relatively small and number of streets is relatively high, then the monopolist will create a dealer in the city center.