Competitive Location Problem With Foresight Considering Service Distance Limitation

China’s express delivery industry has become the largest one in the world and it has recorded a high annual growth during the past years. With the boom in this sector, every express enterprises plan to expand their market share andprofits. In order to increase the market share and provide better service to customers, some express enterprises determine to launch their new express service stores to keep company competitive, however, in the same time they know that the competitors will react by opening new facilities in the future. This is the framework of the competitive facility location problem to be researched in the paper.Competitive facility location problem(CFLP) differs from the classic facility location problem(FLP) in the respect that it explicitly incorporates the fact that other facilities are already(or will be) present in the market and that the new facility(ies) will have to compete with them for its(their) market share.In this paper, the model under study is competition with foresight which consists of two phases, that is the leader will take the follower’s react in the future into account.At the first stage the leader locates his new facilities to maximize his market share in the condition that he knows follower’s objective function and the preferences of each consumer. At the second stage the follower, knowing the leader’s facility information, places his facilities aiming to maximize his market share. Furthermore, he knows the preferences of each consumer.Based on the related literature of the competitive facility location problem with foresight, the paper incorporates the facts of express service stores location and considers the service distance constrains in the location problem. According to the Huff model, a new attractiveness function is designed by taking into account the service distance, which assumes that the attraction of a facility to a customer decreases by their distance and falls to zero if the distance is beyond a limitation. And a new kind of customer behavior is proposed. First, when the customer is within some facilities’ service distance, the customer behavior follows a random model, namely his demand is splat by these facilities. Second, if the customer is within only one facility’s service distance, the customer behavior is deterministic model and his full demand is serviced by this facility. Finally, if the customer is beyond any facility’s service distance, his demand is ignored.A bi-level nonlinear integer programming model is formulated for the problem by considering the service distance of the facility to maximize the leader’s market share. In the model, customer’s demand is split according to the proposed customer behavior. In order to solve large scale problems, a two-stage hybrid tabu search algorithm is developed. The performance of the designed algorithm is first evaluated by comparing with optimal solutions on small instances. Then the results on large scale problems are reported and analyzed which indicate that the proposed algorithm provides an effective means to solve the problems.