Page 22 - Azerbaijan State University of Economics

Salah Salimian, Kiumars Shahbazi, Mahdi M. Beknazar: Locating The Sale Agents In Spoke Model
Through Uniform Distribution Of Consumers

INTRODUCTION
In contemporary world, with intensification of the competition between firms and
manufacturers, the provision of services in locations intended by the consumers is
determining factor in customer attraction and maintenance. The issue of location in
economics deals with finding optimal location to achieve the objective defined by the
firm. This objective could be earning higher profit, achievement of higher market
share, reduction of distribution costs and etc. for manufacturer. The selection of
optimal location could guarantee the long-term profitability of the firm such that the
survival of the firm or institution would be endangered in case of failure in performing
such examinations. Locating has also great effect on the ability of earning and
maintenance of competitive advantage (Choo & Mazzrol, 2003). Moreover, if there
was a basic method based on scientific trends and specified indices for evaluation of
the optimal location and number of sale agents, now there would be no failure of sale
agents in most markets and most of them would have not been given permit and
license (Unido, 1985).

In contemporary world, the manufacturers mostly do not engage directly with
consumers (who are called end users); rather, they sell their products to the agents and
distributors who mostly sell their products by retail price. In literature of economics,
the agreements between manufacturers and retailers are called vertical restraints. The
common agreements between manufacturers and distributors include: exclusive
territorial arrangements, exclusive dealership, full-line forcing and resale price
maintenance (Shy Oz, 1995)

All these arrangements are along with payment agreements which specify the manner of
payment of sold product to the manufacturer. In following, it is assumed that supplying
through sale agents is profitable for manufacturers. Although various studies have dealt
with non-competitive locating, most of them have been based on geographical methods
and this issue has not been taken into account from the economic point of view. The
competitive locating models had been developed from Hotelling linear city model in 1929
and have been so far conforming to the real world more and more. By actualization and
expansion of this model to circular city model, the location related problems were solved.
Following the expansion of these models, Chen & Riordan (2007) and Lijesen &
Reggiani (2013) presented spoke model which despite its simplifying assumptions is
closer to real world. This model is a natural extension of the classic Hotelling (1929)
model to a set of vanes with a center. The difference of spoke model with circular city
model is in the junction of streets through center which does not exist in circular city
model. The spoke model is an important alternative to the circular city model when the
effects of competition are not present (Salop, 1979).

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