Strategic Network Design for Parcel Delivery with Drones Under Competition

Abstract

This paper studies the economic desirability of unmanned aerial vehicle (UAV) parcel delivery and its effect on e-retailer distribution networks while taking into account technological limitations, government regulations, and customer behavior. We consider an e-retailer offering multiple same-day delivery services including a fast UAV service and develop a distribution network design formulation under service-based competition where the services offered by the e-retailer not only compete with the stores (convenience, grocery, etc.) but also with each other. Competition is incorporated using the multinomial logit market share model. To solve the resulting nonlinear mathematical formulation, we develop a novel logic-based Benders decomposition approach. We build a case based on New York City, carry out extensive numerical testing, and perform sensitivity analyses over delivery charge, delivery time, government regulations, technological limitations, customer behavior, and market size. The results show that government regulations, technological limitations, and service charge decisions each play a vital role in the future of UAV delivery.