Sequential Competitive Facility Location: Exact and Approximate Algorithms.

In "Sequential Competitive Facility Location: Exact and Approximate Algorithms," Qi et al. consider a competitive facility location problem (CFLP), where two firms sequentially open new facilities within their budgets and maximize their market shares of demand following a probabilistic choice model. They derive an equivalent, single-level mixed-integer nonlinear program (MINLP) reformulation of the bilevel MINLP and exploit the problem structures to derive valid inequalities based on submodularity and concave overestimation. They also develop an approximation algorithm with a constant approximation guarantee. They further study several extensions of CFLP that have general facility-opening costs, outside competitors, and diverse facility-planning decisions. Their approaches significantly accelerate the computation of CFLP on large-sized instances that have not been solved optimally or even heuristically by existing methods. We study a competitive facility location problem (CFLP), where two firms sequentially open new facilities within their budgets, in order to maximize their market shares of demand that follows a probabilistic choice model. This process is a Stackelberg game and admits a bilevel mixed-integer nonlinear program (MINLP) formulation. We derive an equivalent, single-level MINLP reformulation and exploit the problem structures to derive two valid inequalities based on submodularity and concave overestimation, respectively. We use the two valid inequalities in a branch-and-cut algorithm to find globally optimal solutions. Then, we propose an approximation algorithm to find good-quality solutions with a constant approximation guarantee. We develop several extensions by considering general facility-opening costs and outside competitors as well as diverse facility-planning decisions, and we discuss solution approaches for each extension. We conduct numerical studies to demonstrate that the exact algorithm significantly accelerates the computation of CFLP on large-sized instances that have not been solved optimally or even heuristically by existing methods, and the approximation algorithm can quickly find high-quality solutions. We derive managerial insights based on sensitivity analysis of different settings that affect customers' probabilistic choices and the ensuing demand. Funding: M. Qi was partially supported by the National Natural Science Foundation of China [Grant 71772100] to work on this project. Supplemental Material: The online appendix is available at https://doi.org/10.1287/opre.2022.2339. [ABSTRACT FROM AUTHOR]