EURO 2025 Leeds
Abstract Submission

312. A Stackelberg game framework for hub design and pricing optimization in transportation networks

Invited abstract in session MB-55: Network Optimization 2, stream Network Optimization.

Monday, 10:30-12:00
Room: Liberty 1.09

Authors (first author is the speaker)

1. Seyed Parsa Parvasi
Management, Technical University of Denmark (DTU)
2. MirMohammad Musavi
University of Tehran
3. S. Ali Torabi
Industrial Engineering, University of Tehran
4. Wei Yim Yap
School of Business, Singapore University of Social Sciences, Singapore
5. Jasmine Siu Lee Lam
Technical University of Denmark

Abstract

Reducing transportation costs and offering competitive service prices are key challenges in today’s market, particularly for transportation companies operating as third-party logistics (3PL) providers. Designing efficient service networks through effective hub management plays a crucial role in addressing this challenge. This study focuses on how a new entrant can improve its competitive advantage by designing its hub-and-spoke network and setting competitive prices while considering the incumbent’s responses. Using a bi-level mathematical model based on the Stackelberg (i.e. foresight) competition framework, this research examines customer preferences with a logit model and employs a novel decomposition-based solution technique. To solve this complex problem, a tabu search algorithm for solving the hub location sub-problem and a hybrid hyper-heuristic for solving the pricing sub-problem, are tailored. The findings reveal that the entrant can enhance its market share and profitability by strategically positioning its hubs and setting competitive prices, particularly when the incumbent operates with fewer hubs. The study also highlights that differences in discount rates between competitors significantly impact their profit, especially when customers’ price sensitivity increases.

Keywords

Status: accepted

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