Groupe d’études et de recherche en analyse des décisions

G-2004-67

An Economic and Mathematical Analysis of Gasoline Station Location: A Case Study

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In this paper we use Noboru (2000) convenience-store location model, to describe a case study for locating gasoline stations (i.e. the distance between two neighboring stations) and its size, which are operated by one or more petroleum companies in a different urban market structures in Montreal (Canada). In order to maximize its profit, a petroleum company selects as its decision variables the distance between the two neighboring stations (or n, the number of its stations located within a given linear market area of fixed length N) and the size of an individual station. The outcomes of the monopolistic, duopolistic and oligopolistic equilibra are compared with the "socially optimal" outcome. Such solutions are dependent on the reservation price of the gasoline held by automobilists, the marginal supply cost of gasoline and the maintenance cost of an individual station. After the analytical presentation, numerical simulations are given, including a sensitivity analysis with regard to the time service rate. A large discrepancy between the equilibrium and the optimum is shown to exist as in Noboru (2000).

, 16 pages