A competitive hub location and pricing problem

Armin Lüer-Villagra, Vladimir Marianov

Research output: Contribution to journalArticle

57 Citations (Scopus)

Abstract

We formulate and solve a new hub location and pricing problem, describing a situation in which an existing transportation company operates a hub and spoke network, and a new company wants to enter into the same market, using an incomplete hub and spoke network. The entrant maximizes its profit by choosing the best hub locations and network topology and applying optimal pricing, considering that the existing company applies mill pricing. Customers' behavior is modeled using a logit discrete choice model. We solve instances derived from the CAB dataset using a genetic algorithm and a closed expression for the optimal pricing. Our model confirms that, in competitive settings, seeking the largest market share is dominated by profit maximization. We also describe some conditions under which it is not convenient for the entrant to enter the market.

Original languageEnglish
Pages (from-to)734-744
Number of pages11
JournalEuropean Journal of Operational Research
Volume231
Issue number3
DOIs
Publication statusPublished - 16 Dec 2013

Keywords

  • Competitive models
  • Hub and spoke
  • Hub location problems
  • Location
  • Location and pricing

ASJC Scopus subject areas

  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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