Location Games on Networks: Existence and Efficiency of Equilibria

Abstract: We consider a game where a finite number of retailers choose a location, given that their potential consumers are distributed on a network. Retailers do not compete on price but only on location, therefore each consumer shops at the closest store. We show that when the number of retailers is large enough, the game admits a pure Nash equilibrium and we construct it. We then compare the equilibrium cost borne by the consumers with the cost that could be achieved if the retailers followed the dictate of a benevolent planner. We perform this comparison in term of the price of anarchy, i.e., the ratio of the worst equilibrium cost and the optimal cost, and the price of stability, i.e., the ratio of the best equilibrium cost and the optimal cost. We show that, asymptotically in the number of retailers, these ratios are bounded by two and one, respectively.