Optimizing capacity, pricing and location decisions on a congested network with balking

In this paper, we consider the problem of making simultaneous decisions on the location, service rate (capacity) and the price of providing service for facilities on a network. We assume that the demand for service from each node of the network follows a Poisson process. The demand is assumed to depend on both price and distance. All facilities are assumed to charge the same price and customers wishing to obtain service choose a facility according to a Multinomial Logit function. Upon arrival to a facility, customers may join the system after observing the number of people in the queue. Service time at each facility is assumed to be exponentially distributed. We first present several structural results. Then, we propose an algorithm to obtain the optimal service rate and an approximate optimal price at each facility. We also develop a heuristic algorithm to find the locations of the facilities based on the tabu search method. We demonstrate the efficiency of the algorithms numerically. Copyright Springer-Verlag 2011