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Optimizing capacity, pricing and location decisions on a congested network with balking

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  • Hossein Abouee-Mehrizi
  • Sahar Babri
  • Oded Berman
  • Hassan Shavandi

Abstract

In this paper, we consider the problem of making simultaneous decisions on the location, service rate (capacity) and the price of providing service for facilities on a network. We assume that the demand for service from each node of the network follows a Poisson process. The demand is assumed to depend on both price and distance. All facilities are assumed to charge the same price and customers wishing to obtain service choose a facility according to a Multinomial Logit function. Upon arrival to a facility, customers may join the system after observing the number of people in the queue. Service time at each facility is assumed to be exponentially distributed. We first present several structural results. Then, we propose an algorithm to obtain the optimal service rate and an approximate optimal price at each facility. We also develop a heuristic algorithm to find the locations of the facilities based on the tabu search method. We demonstrate the efficiency of the algorithms numerically. Copyright Springer-Verlag 2011

Suggested Citation

  • 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.
    • Handle: RePEc:spr:mathme:v:74:y:2011:i:2:p:233-255
    DOI: 10.1007/s00186-011-0361-6
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    References listed on IDEAS

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    Cited by:

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    5. Ebrahim Teimoury & Mohammad Modarres & Morteza Neishaboori, 2020. "Cost-based differential pricing for a make-to-order production system in a competitive segmented market," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(4), pages 266-275, August.
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    7. 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.
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    9. Teodora Dan & Patrice Marcotte, 2019. "Competitive Facility Location with Selfish Users and Queues," Operations Research, INFORMS, vol. 67(2), pages 479-497, March.

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