A Bilevel Competitive Location and Pricing Model with Nonuniform Split of Demand

Abstract

Under study is the bilevel competitive facility location and pricing problem which is formulated in terms of the Stackelberg game. The problem involves the two producers: the Leader and the Competitor. They consistently place their facilities and set prices. The choice of prices is based on the Bertrand model of price competition and the possibility of dividing a client’s demand if this will be profitable for both players. In this case, the demand is divided between the players in a given proportion. The complexity is investigated of finding the optimal solution of the problem and its particular cases. It is shown that the problem is \(\Sigma_2^P\)-hard. However, under certain conditions on the input parameters, the complexity decreases significantly and in some cases the problem becomes polynomially solvable.