Competitive Multilevel Capacity Allocation

In this paper we consider a supply chain where the purchasing behavior of final users of the product influences the decisions that are made. We particularly examine the effects of customers’ competition for the offered service level on the facility location decisions. We consider two types of decision makers, the producer who tries to provide at facilities the best level of service at minimum cost and the customers who make their choices in order to minimize their perceived costs. We consider first the case where customers are assigned for service to the facilities by the producer. In such a case the producer could be considered as monopolist who dominates and tries, through the facility location decisions, to ensure the best, at his opinion, service level at minimum cost. Then we suppose that the customers are involved in a Nash type game in their effort to ensure the best level of services for themselves, i.e. we assume that they are involved in an oligopsony. In order to take into consideration the effects of this competition to the facilities location decisions we formulated the problem as a bilevel programming model. Next, we suppose that there are two producers operating in the network, who constitute a duopoly. The producers compete with each other with respect to the service level they offer in order to attract customers. We propose a bilevel model with two leaders in order to take into account both the competition between producers and the competition among customers.