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Optimizing pricing and location decisions for competitive service facilities charging uniform price

Author

Listed:
  • R Aboolian

    (California State University San Marcos)

  • O Berman

    (University of Toronto)

  • D Krass

    (University of Toronto)

Abstract

In this paper, we present the problem of optimizing the location and pricing for a set of new service facilities entering a competitive marketplace. We assume that the new facilities must charge the same (uniform) price and the objective is to optimize the overall profit for the new facilities. Demand for service is assumed to be concentrated at discrete demand points (customer markets); customers in each market patronize the facility providing the highest utility. Customer demand function is assumed to be elastic; the demand is affected by the price, facility attractiveness, and the travel cost for the highest-utility facility. We provide both structural and algorithmic results, as well as some managerial insights for this problem. We show that the optimal price can be selected from a certain finite set of values that can be computed in advance; this fact is used to develop an efficient mathematical programming formulation for our model.

Suggested Citation

  • R Aboolian & O Berman & D Krass, 2008. "Optimizing pricing and location decisions for competitive service facilities charging uniform price," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(11), pages 1506-1519, November.
    • Handle: RePEc:pal:jorsoc:v:59:y:2008:i:11:d:10.1057_palgrave.jors.2602493
    DOI: 10.1057/palgrave.jors.2602493
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    References listed on IDEAS

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    1. Aboolian, Robert & Berman, Oded & Krass, Dmitry, 2007. "Competitive facility location model with concave demand," European Journal of Operational Research, Elsevier, vol. 181(2), pages 598-619, September.
    2. Pierre Hanjoul & Pierre Hansen & Dominique Peeters & Jacques-Francois Thisse, 1990. "Uncapacitated Plant Location Under Alternative Spatial Price Policies," Management Science, INFORMS, vol. 36(1), pages 41-57, January.
    3. repec:bla:jregsc:v:44:y:2004:i:3:p:489-515:2 is not listed on IDEAS
    4. Eiselt, H. A. & Laporte, G., 1989. "Competitive spatial models," European Journal of Operational Research, Elsevier, vol. 39(3), pages 231-242, April.
    5. Abdullah Dasci & Gilbert Laporte, 2004. "Location and Pricing Decisions of a MultiStore Monopoly in a Spatial Market," Journal of Regional Science, Wiley Blackwell, vol. 44(3), pages 489-515, August.
    6. Oded Berman & Dmitry Krass, 2002. "Locating Multiple Competitive Facilities: Spatial Interaction Models with Variable Expenditures," Annals of Operations Research, Springer, vol. 111(1), pages 197-225, March.
    7. Daniel Serra & Charles Revelle, 1997. "Competitive location and pricing on networks," Economics Working Papers 219, Department of Economics and Business, Universitat Pompeu Fabra.
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    Citations

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    Cited by:

    1. Vahideh Sadat Abedi & Oded Berman & Dmitry Krass, 2014. "Supporting New Product or Service Introductions: Location, Marketing, and Word of Mouth," Operations Research, INFORMS, vol. 62(5), pages 994-1013, October.
    2. Hossein Abouee-Mehrizi & Sahar Babri & Oded Berman & Hassan Shavandi, 2011. "Optimizing capacity, pricing and location decisions on a congested network with balking," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 74(2), pages 233-255, October.
    3. Sedghi, Nafiseh & Shavandi, Hassan & Abouee-Mehrizi, Hossein, 2017. "Joint pricing and location decisions in a heterogeneous market," European Journal of Operational Research, Elsevier, vol. 261(1), pages 234-246.
    4. Azad, Nader & Hassini, Elkafi, 2019. "Recovery strategies from major supply disruptions in single and multiple sourcing networks," European Journal of Operational Research, Elsevier, vol. 275(2), pages 481-501.
    5. Zhang, Wenwei & Xu, Min & Wang, Shuaian, 2023. "Joint location and pricing optimization of self-service in urban logistics considering customers’ choice behavior," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 174(C).
    6. Drezner, Zvi & Eiselt, H.A., 2024. "Competitive location models: A review," European Journal of Operational Research, Elsevier, vol. 316(1), pages 5-18.
    7. Laurent Alfandari & Victoire Denoyel & Aurélie Thiele, 2020. "Solving utility-maximization selection problems with Multinomial Logit demand: Is the First-Choice model a good approximation?," Annals of Operations Research, Springer, vol. 292(1), pages 553-573, September.
    8. Teodora Dan & Andrea Lodi & Patrice Marcotte, 2020. "Joint location and pricing within a user-optimized environment," EURO Journal on Computational Optimization, Springer;EURO - The Association of European Operational Research Societies, vol. 8(1), pages 61-84, March.
    9. repec:spr:compst:v:74:y:2011:i:2:p:233-255 is not listed on IDEAS
    10. Hoseinpour, Pooya & Ahmadi-Javid, Amir, 2016. "A profit-maximization location-capacity model for designing a service system with risk of service interruptions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 96(C), pages 113-134.
    11. Lin, Yun Hui & Tian, Qingyun, 2023. "Facility location and pricing problem: Discretized mill price and exact algorithms," European Journal of Operational Research, Elsevier, vol. 308(2), pages 568-580.
    12. Bai, Yun & Ouyang, Yanfeng & Pang, Jong-Shi, 2012. "Biofuel supply chain design under competitive agricultural land use and feedstock market equilibrium," Energy Economics, Elsevier, vol. 34(5), pages 1623-1633.
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