Location Model - Traditional Vs. Location Models

Traditional Vs. Location Models

In traditional models, consumers display preference given the constraints of a product characteristic space. Consumers perceive certain brands with common characteristics to be close substitutes, and differentiate these products from their unique characteristics. For example, there are many brands of chocolate with nuts and others without them. Hence, the chocolate with nuts is a constraint of its product characteristic space.

On the other hand, consumers in location models display preference for both the utility gained from a particular brand’s characteristics as well as its geographic location; these two factors form an enhanced “product characteristic space”. Consumers are now willing to sacrifice pleasure from products for a closer geographic location, and vice versa. For example, consumers realize high costs for products that are located far from their spatial point (e.g. transportation costs, time, etc.) and also for products that deviate from their ideal features. Firms have greater market power when they satisfy the consumer’s demand for products at closer distance or preferred products.