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

R Aboolian, O Berman () and D Krass ()
Additional contact information
R Aboolian: California State University San Marcos
O Berman: University of Toronto
D Krass: University of Toronto

Journal of the Operational Research Society, 2008, vol. 59, issue 11, 1506-1519

Abstract: 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.

Keywords: competitive location models; capacity planning; pricing; non-linear integer programming; approximation (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (12)

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DOI: 10.1057/palgrave.jors.2602493

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