Profit Maximizing Distributed Service System Design with Congestion and Elastic Demand

Robert Aboolian (), Oded Berman () and Dmitry Krass ()
Additional contact information
Robert Aboolian: College of Business Administration, California State University San Marcos, San Marcos, California 92096
Oded Berman: Rotman School of Management, University of Toronto, Toronto, Ontario, Canada M5S 3E6
Dmitry Krass: Rotman School of Management, University of Toronto, Toronto, Ontario, Canada M5S 3E6

Transportation Science, 2012, vol. 46, issue 2, 247-261

Abstract: In this paper we develop a service network design model that explicitly takes into account the elasticity of customer demand with respect to travel distance and congestion delays. The model incorporates a feedback loop between customer demand and congestion at the facilities. The problem is to determine the number of facilities, their locations, their service capacity, and the assignment of customers to facilities so as to maximize the overall profit of the system. Two versions of the problem are presented. In one, each facility is modeled as an M / M /1 queuing system where the service rate is a decision variable; in the other one, the facility is modeled as an M / M / k queuing model where the service rate is given, but the number k is a decision variable. An exact algorithm and heuristics are developed and tested via computational experiments. Although our model is of the “directed choice” type where the assignment of customers to facilities is controlled by the decision maker, computational results show that in the vast majority of cases the customers are assigned to the utility-maximizing facility, indicating that there is no conflict between the customers' and decision makers' goals. A case study of locating preventive medicine clinics in Toronto, Ontario, illustrates the model.

Keywords: service system design; elastic demand; congestion; nonlinear integer program (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://dx.doi.org/10.1287/trsc.1110.0392 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ortrsc:v:46:y:2012:i:2:p:247-261

Access Statistics for this article

More articles in Transportation Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().