Approximate algorithms for the competitive facility location problem

Abstract

We consider the competitive facility location problem in which two competing sides (the Leader and the Follower) open in succession their facilities, and each consumer chooses one of the open facilities basing on its own preferences. The problem amounts to choosing the Leader’s facility locations so that to obtain maximal profit taking into account the subsequent facility location by the Follower who also aims to obtain maximal profit. We state the problem as a two-level integer programming problem. A method is proposed for calculating an upper bound for the maximal profit of the Leader. The corresponding algorithm amounts to constructing the classical maximum facility location problem and finding an optimal solution to it. Simultaneously with calculating an upper bound we construct an initial approximate solution to the competitive facility location problem. We propose some local search algorithms for improving the initial approximate solutions. We include the results of some simulations with the proposed algorithms, which enable us to estimate the precision of the resulting approximate solutions and give a comparative estimate for the quality of the algorithms under consideration for constructing the approximate solutions to the problem.