Retail Location Choice with Complementary Goods: An Agent-Based Model

Abstract. This paper models the emergence of retail clusters on a supply chain network comprised of suppliers, retailers, and consumers. Firstly, an agent-based model is proposed to investigate retail location distribution in a market of two complementary goods. The methodology controls for supplier locales and unit sales prices of retailers and suppli-ers, and a consumer’s willingness to patronize a retailer depends on the total travel distance of buying both goods. On a circle comprised of dis-crete locations, retailers play a non-cooperative game of location choice to maximize individual profits. Our findings suggest that the probabil-ity distribution of the number of clusters in equilibrium follows power law and that hierarchical distribution patterns are much more likely to occur than the spread-out ones. In addition, retailers of complementary goods tend to co-locate at supplier locales. Sensitivity tests on the num-ber of retailers are also performed. Secondly, based on the County Busi-ness Patterns (CBP) data of Minneapolis-St. Paul from US Census 2000 database, we find that the number of clothing stores and the distribution of food stores at the zip code level follows power-law distribution