Robust Model of Discrete Competitive Facility Location Problem with Partially Proportional Rule

Abstract

When consumers faced with the choice of competitive chain facilities that offer exclusive services, current rules cannot describe these customers’ behaviors very well. So we propose a partially proportional rule to represent this kind of customer behavior. In addition, the exact demands of customers in many real-world environments are often difficult to determine. This is contradicting to the assumption in most studies of the competitive facility location problem. For the competitive facility location problem with the partially proportional rule, we establish a robust optimization model to handle the uncertainty of customers’ demands. We propose two methods to solve the robust model by studying the properties of the counterpart problem. The first method MIP is presented by solving a mixed-integer optimization model of the counterpart problem directly. The second method SAS is given by embedding a sorting subalgorithm into the simulated annealing framework, in which the sorting subalgorithm can easily solve the subproblem. The effects of the budget and the robust control parameter to the location scheme are analyzed in a quasi-real example. The result shows that changes in the robust control parameter can affect the customer demands that were captured by the new entrants, thereby changing the optimal solution for facility location. In addition, there is a threshold of the robust control parameter for any given budget. Only when the robust control parameter is larger than this threshold, the market share captured by the new entering firm increases with the increases of this parameter. Finally, numerical experiments show the superiority of the algorithm SAS in large-scare competitive facility location problems.