Incorporation of competitors' reactions in discrete competitive facility location and design

When a retail firm locates a new facility in a network and begins attracting customers in an existing market, it will typically stimulate certain reactions of other firms offering the same goods. To maximize its market share by optimizing its location and design decisions, the entering firm must anticipate the reactions of the facilities already present in the market. Since the relocation of an existing facility is expensive, the competitors usually improve their qualities to compete with the new firm so as to minimize their market share lost. In this paper, we develop a new method that takes into account the reactions of the facilities already present for a discrete competitive facility location and design problem. The method proposed uses a genetic algorithm to search for optimal or near-optimal locations of new facilities and uses Nash equilibrium to determine the best quality of each facility.