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A competitive hub location and pricing problem

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  • Lüer-Villagra, Armin
  • Marianov, Vladimir

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.

Suggested Citation

  • Lüer-Villagra, Armin & Marianov, Vladimir, 2013. "A competitive hub location and pricing problem," European Journal of Operational Research, Elsevier, vol. 231(3), pages 734-744.
  • Handle: RePEc:eee:ejores:v:231:y:2013:i:3:p:734-744
    DOI: 10.1016/j.ejor.2013.06.006
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    References listed on IDEAS

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    9. Contreras, Ivan & Fernández, Elena & Marín, Alfredo, 2010. "The Tree of Hubs Location Problem," European Journal of Operational Research, Elsevier, vol. 202(2), pages 390-400, April.
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    Citations

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    Cited by:

    1. Morton O’Kelly & Henrique Luna & Ricardo Camargo & Gilberto Miranda, 2015. "Hub Location Problems with Price Sensitive Demands," Networks and Spatial Economics, Springer, vol. 15(4), pages 917-945, December.
    2. Etemadnia, Hamideh & Goetz, Stephan J. & Canning, Patrick & Tavallali, Mohammad Sadegh, 2015. "Optimal wholesale facilities location within the fruit and vegetables supply chain with bimodal transportation options: An LP-MIP heuristic approach," European Journal of Operational Research, Elsevier, vol. 244(2), pages 648-661.
    3. Alibeyg, Armaghan & Contreras, Ivan & Fernández, Elena, 2016. "Hub network design problems with profits," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 96(C), pages 40-59.
    4. Niknamfar, Amir Hossein & Niaki, Seyed Taghi Akhavan, 2016. "Fair profit contract for a carrier collaboration framework in a green hub network under soft time-windows: Dual lexicographic max–min approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 91(C), pages 129-151.
    5. repec:eee:transa:v:107:y:2018:i:c:p:187-202 is not listed on IDEAS
    6. repec:eee:ejores:v:266:y:2018:i:1:p:57-71 is not listed on IDEAS
    7. repec:spr:annopr:v:246:y:2016:i:1:d:10.1007_s10479-014-1704-5 is not listed on IDEAS
    8. repec:eee:transb:v:100:y:2017:i:c:p:64-81 is not listed on IDEAS
    9. Mahmutogullari, Ali Irfan & Kara, Bahar Y., 2016. "Hub location under competition," European Journal of Operational Research, Elsevier, vol. 250(1), pages 214-225.
    10. Zhang, Yue, 2015. "Designing a retail store network with strategic pricing in a competitive environment," International Journal of Production Economics, Elsevier, vol. 159(C), pages 265-273.

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