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Robust competitive facility location model with uncertain demand types.

Wuyang Yu1

  • 1School of Management, Hangzhou Dianzi University, Hangzhou, Zhejiang Province, China.

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This summary is machine-generated.

This study introduces a new model for facility location, considering consumer demand for both convenience and quality. The findings show that demand uncertainty often doesn't impact location, but convenience and quality ranges are crucial for market share.

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Area of Science:

  • Operations Research
  • Business Analytics
  • Spatial Economics

Background:

  • Firms strategically locate facilities to maximize market share in competitive environments.
  • Consumer behavior often involves dual motivations: seeking convenience for some demands and high quality for others.
  • Existing competitive facility location models have not incorporated this dual-demand behavior.

Purpose of the Study:

  • To develop a robust facility location model for a new entrant company.
  • To maximize market share by strategically locating facilities based on dual consumer demand patterns.
  • To address the uncertainty in customer demand types.

Main Methods:

  • A two-level robust optimization model was formulated for facility location.
  • For medium-sized problems, an equivalent mixed binary linear programming model was developed for exact solutions.
  • For large-sized problems, an exact algorithm (GCKP-A) and a heuristic algorithm integrating GCKP-A with a 2-opt strategy were proposed.

Main Results:

  • The proposed heuristic algorithm's performance was validated across various problem sizes.
  • Sensitivity analysis revealed that demand type uncertainty typically does not alter location schemes.
  • Convenience range, quality range, and quality threshold significantly influence a new entrant's market share.

Conclusions:

  • The study provides a novel approach to facility location by incorporating dual consumer demand motivations.
  • The developed models and algorithms offer practical solutions for new market entrants aiming to optimize facility placement.
  • Understanding and leveraging consumer convenience and quality preferences is key to maximizing market share.