On the competitive facility location problem with a Bayesian spatial interaction model

Abstract

The competitive facility location problem arises when businesses plan to enter a new market or expand their presence. We introduce a Bayesian spatial interaction model which provides probabilistic estimates on location-specific revenues and then formulate a mathematical framework to simultaneously identify the location and design of new facilities that maximise revenue. To solve the allocation optimisation problem, we develop a hierarchical search algorithm and associated sampling techniques that explore geographic regions of varying spatial resolution. We demonstrate the approach by producing optimal facility locations and corresponding designs for two large-scale applications in the supermarket and pub sectors of Greater London.