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Profit-oriented fixed-charge network design with elastic demand

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  • Zetina, Carlos Armando
  • Contreras, Ivan
  • Cordeau, Jean-François

Abstract

This paper extends classic fixed-charge multicommodity network design by explicitly considering demand elasticity with respect to routing cost in a profit maximization context with service commitments. Demand quantity is determined by a spatial interaction model that accounts for routing costs, thus capturing the trade-off between infrastructure investment, efficient routing, and increased revenue. A numerical example is presented to demonstrate the added value of incorporating demand elasticity in profit-oriented network design problems. An arc-based and a path-based formulation, both with the flexibility of incorporating O/D pair selection by means of network and data transformations, are presented. The arc-based formulation is solved using state-of-the-art global optimization software while the path-based formulation serves as the basis for a hybrid matheuristic that combines a slope scaling metaheuristic and column generation. Computational experience shows the hybrid matheuristic to be superior in terms of solution quality and computation time.

Suggested Citation

  • Zetina, Carlos Armando & Contreras, Ivan & Cordeau, Jean-François, 2019. "Profit-oriented fixed-charge network design with elastic demand," Transportation Research Part B: Methodological, Elsevier, vol. 127(C), pages 1-19.
    • Handle: RePEc:eee:transb:v:127:y:2019:i:c:p:1-19
    DOI: 10.1016/j.trb.2019.06.004
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