Hello,
I am working on a store expansion strategy: identifying optimal locations for new store openings.
My approach:
• I divide the trade areAa into grid cells, each representing a population segment acting as a “consumer”
• Each consumer faces a nested choice: first selecting a store format (discounter, proximity, or market), then a brand within that format
• I use travel time to the nearest store as the key distance variable
• I have sales data for all three formats across our stores and most competitors, except for the discounter format, where only our own data is available
I have two specific questions:
With no competitor sales data for the discounter format, how would you recommend handling this in the nested logit estimation ? Would you suggest imputation, fixing certain parameters, or an alternative identification strategy?
When multiple store formats from the same or competing brands are geographically close, how should the model account for within-nest spatial overlap? Is there a preferred way to handle this beyond what the IIA-relaxing nesting structure already provides?
Thank you for reading.