Studying the effect of considering competition in locating logistic hubs on the international shipping market share using the game theory

Hub location problem (HLP) is one of the strategic planning problems in logistics with numerous applications in passenger/cargo transportation, postal services, telecommunications, etc. This paper addresses the competitive single allocation HLP where the market is assumed to be a duopoly. Two firms (decision makers) sequentially decide on the configuration of their hub networks trying to maximize their own market shares and the customers choose one firm based on the service level (cost, distance, and etc.) provided by these firms. Mathematical formulations are provided for the problems of the first and second firms (the leader and the follower, respectively) and a tabu search (TS) based solution algorithm is proposed for solving the leader's and the follower's problems. Standard data sets, which exist in the literature of HLP, have been used to validate the solution methods and mathematical models. Computational experiments show that considering the competition in deciding on the location of hubs can positively affect the captured market share from the international shipping markets.