The Optimal Nodal Location of Public Facilities With Price‐Sensitive Demand

Abstract

AbstractThe purpose of this paper is to present some models for the location of public facilities in nodal networks that explicitly maximize social welfare by accounting for price‐elastic demand functions. The models presented here are general; yet they are mathematically equivalent to the plant location problem and are therefore amenable to solution procedures developed for the plant location problem. The models presented here distinguish between two institutional environments that reflect the degree of power of the consumer to choose which facility to patronize. If consumers can be assigned arbitrarily to facilities and can be denied service, then the environment is one of public fiat. If consumers must be served at the facility of their choice, then a “serve‐allcomers” environment exists. Separate models for each environment are specified, and the relationship between optimal assignments and pricing policies is developed.