Environmentally friendly facility location with market competition

Abstract

Many traditional facility location models assume spatial monopoly where market competition is ignored. Since facility locations affect the firm’s market exposure and subsequently its profit, accounting for the impact of the location decisions on customers while anticipating the reaction of competitor firms is essential. In this paper, we introduce a competitive facility location problem where market prices and production costs are determined through the economic equilibrium while explicitly considering competition from other firms. In order to accommodate for the growing efforts on limiting carbon emissions, the presented model includes constraints on the amount of carbon emissions that are due to transportation, while allowing carbon trading. The problem is formulated as a mixed integer non-linear model. Through numerical examples, we illustrate the effect of market competition on the location decisions and discuss the impact of emission limits and carbon trading on customers.

Keywords:

• facility location
• Stackelberg competition
• carbon emissions
• mathematical programming with equilibrium constraints

Acknowledgements

This work is partially supported by the Natural Sciences and Engineering Research Council (Bissan Ghaddar and Joe Naoum-Sawaya are funded by Natural Sciences and Engineering Research Council—Alexander Graham Bell Canada Graduate Scholarships.). The authors also thank two anonymous referees for their constructive comments that have greatly helped improve this paper.