There are 3 outlet malls around the area of Lafayette, Chicago, Lighthouse, and

Question

There are 3 outlet malls around the area of Lafayette, Chicago, Lighthouse, and Edinburgh. The distance and number of brands are listed below. Suppose the coefficient for distance is 1 and the coefficient for number of brands is 2. Please use the gravity model to predict their respective market shares for the residents of Lafayette Distance from West Lafayette Number of Brands Miles 151 Premium Outlet Chicago Lighthouse Edinburgh 1. Market share of Chicago 140 91 120 106 85 2. Market share of Lighthouse 3. Market share of Edinburgh Please choose from the following choices A 19.1% ·B 44.4% 36.596

Explanation / Answer

Chicago -> c) 36.5%

Lighthouse -> b) 44.4%

Edinburg --> a) 19.1%

PS- if you need detailed explaination let me know

as the coefficients of brands and distance are 2 and 1 respectively

so, as per the gravity model - Chicago's gravity = (brands^2 ) / distance = 129.8

similarly Lighthouse's gravity = 158.24

Edinburg's gravity = 68.16

now, market share for Chicago is = Chicago's gravity / total gravity of the three combined

= 129.8 / (129.8+68.16+158.24)

=0.365

similary for other malls

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