Modelling lost demand in competitive facility location

Abstract

In this paper, we propose a simple new approach to model lost demand (also referred to as elastic demand) in competitive facility location. A ‘dummy’ competing facility that attracts the lost demand is added to the list of competing facilities. All competitive facility location models, regardless of their complexity or assumptions, can be modified to include lost demand and be solved by the same algorithms designed for standard models once the dummy facility is added to the data as an additional competitor.