ELSEVIER Regional Science and Urban Economics 27 (1997) 67-86 ECONOMICS Multi-outlet firms, competition and market segmentation strategies Jean-Claude Thill* Department of Geography, University of Georgia, Athens, GA 30602-2502, USA Received November 1994; final version received September 1995 Abstract This paper examines horizontal differentiation between outlets serving a market characterized by a geographic dimension and a quality dimension. It departs from the bulk of the location literature by assuming that some firms own several outlets and serve the market from these multiple locations. The paper contrasts a strategy of homogeneous store quality with a strategy of heterogeneous quality. For both strategies, competition between multi-outlet firms is articulated around two main forces whose interplay controls the geography and value offering of the industry. The reservation price of consumers for shopping at less than ideal outlets pushes outlets apart, whereas the probabilistic nature of outlet patronage fosters the aggregation of outlets. The relative strength of each force changes with the conditions of the market. Simulation results also highlight the impact of market strategies on competitive behavior. The constraint of the same value position has little or no influence on industry-wide differentiation for reservation utilities that are large or small enough. For intermediate reservation disutilities, the constraint serves to preserve the geographic spread of outlets until firms are better off aggregating both in value and geographically. Keywords: Horizontal differentiation; Spatial competition; Multi-outlet firms JEL classification: D21; L81; M31; R32 * Correspondence address: Department of Geography and National Center for Geographic Information and Analysis, State University of New York, Buffalo, NY 14261-0023, USA. Tel.: +1 (716) 645-2722; fax: +1 (716) 645-2329. 0166-0462/97/$17.00 (~ 1997 Elsevier Science B.V. All rights reserved PII S0166-0462(96)02131-X