A GEOGRAPHIC MODEL OF AN URBAN AUTOMOBILE MARKET 



Theodore E. Hlavac, Jr. 

 Cambridge Research Institute 



John D. C. Little 

 Sloan School of Management 

 Massachusetts Institute of Technology 



1. Introduction 



When a person buys a car, he takes into account either explicitly 

 or implicitly, the distance he must travel to the prospective place of 

 purchase. He is likely to be attracted to a nearby dealer because of 

 easy accessibil^ity for shopping trips' and tuture service visits. He 

 is less likely to be attracted to a distant dealer, but some attraction 

 will exist, especially in the case of a well-advertised dealer having 

 an image of low price and high throughput. Within an urban market, where 

 there is considerable choice of dealehrs, the probability of purchase 

 from a given dealer can be expected to fall off with distance; and, in 

 fact, such a relationship is easily established empirically. 



In the present paper we develop £a model in which a customer's 

 probability of purchase at a given dealer is affected by dealer location 

 and customer make preference, as well as the locations and strengths 

 of all other dealers. Aggregation of the customer model gives a dealer 

 market share (penetration) model, which may also be viewed as a model 

 of competitive interaction. Such a model is fit to data for metropol- 

 itan Chicago. After fitting, the model permits estimation of the 

 sales of a dealership with specified strength and location. 



The most obvious practical use of the model relates to market 

 strategy for new dealerships in the automobile industry, but the model 

 appears to be adaptable to site location problems in other fields as 

 we 1 1 . 



1 



This work was supported in part by Project MAC, an MIT research 

 program sponsored by the Advanced Research Projects Agency, Department 

 of Defense, under Office of Naval Research Contract Number Nonr-A102(01) 

 Part of the research was done at the MIT Computation Center. 



