Information Sciences and Engineering Hub Arc Location with Competition

In this paper, we consider the design of large-scale hub-and-spoke transportation networks in a competitive environment. We adopt the hub arc location model that locates arcs with discounted transport costs connecting pairs of hub facilities. Two firms compete for customers in a Stackelberg framework where the leader firm locates hub arcs to maximize its revenue, given that the follower firm will subsequently locate its own hub arcs to maximize its own revenue. Several mechanisms are presented to allocate traffic between the two firms based on the relative utility of travel via the competing hub networks. Results with up to three hub arcs for each competing firm show the role of a competitive environment in designing transportation systems. key words: Hub location, competition, transportation, Stackelberg