A Mathematical Model for Fuel Pricing Considering Supply Chain Network Design Decisions

Fuel pricing is one of the key issues in energy consumption management, which plays an important role in the proper use of energy resources. In this area, effective decision- and policy-making can, in addition to managing fuel consumption, also prevent drastic price changes in the energy market. Various factors such as fuel supply, demand, production, transportation and inventory costs, supply chain network structure, and competition among retailers affect the final price of fuel. In this paper, we present a bilevel mixed integer nonlinear programming model for fuel pricing in a competitive environment, taking into account different aspects of the problem. The proposed model is based on a single-to-multi Stackelberg-Nash game in which, the first level (leader) is a focal company that is responsible for the location and planning of refineries, and the second level (followers) consists of multiple retailers who are competing with each other to obtain larger fuel market. The competition among retail prices will drive fuel consumption demand. Afterward, the solution method is described and the numerical results are discussed in two cases, a decentralized model and a centralized model. Finally, we examine the impact of different parameters using sensitivity analysis, and provide managerial insights into the problem.