The competitive facility location problem under disruption risks

Two players sequentially locate a fixed number of facilities, competing to capture market share. Facilities face disruption risks, and each customer patronizes the nearest operational facility, regardless of who operates it. The problem therefore combines competitive location and location with disruptions. This combination has been absent from the literature. We model the problem as a Stackelberg game in which the leader locates facilities first, followed by the follower, and formulate the leader’s decision problem as a bilevel optimization problem. A variable neighborhood decomposition search heuristic which includes variable fixing and cut generation is developed. Computational results suggest that high quality solutions can be found quickly. Interesting managerial insights are drawn.

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