Abstract—This paper focuses on the finding of an optimal
pricing and leasing strategy for both the third-party warehouse
and customers, whose conflicts lie on their contradictory
objective functions, via bilevel optimization approach. Bilevel
optimization is a game-based approach where the third-party
warehouse is a leader, who first decides the price of short and
long-term rental contracts taking the behavioral reaction of
other players, that is, customers and its competitor, into
consideration. Once observed, customers then decide which
contracts to be chosen so that their objectives are optimized.
While complicated, under certain assumptions, we can show
that closed-form solutions could be derived. Our experimental
results indicate that competitor storage price significantly
affects both third-party warehouse’s profit and all of its
customer’s total costs. Besides, large customer tends to suffer
more from high opportunity cost; but, the delivery cost charged
by the third-party warehouse is crucial for small customer’s
rental decision.
Index Terms—Bilevel programming, game theory, storage
pricing, third-party warehouse
The
authors are with the Department of Industrial Engineering, Faculty of
Engineering, Chulalongkorn University, Bangkok, Thailand (e-mail:
Suthee.T@student.chula.ac.th and Pisit.ja@chula.ac.th).
[PDF]
Cite: Suthee Thitiananpakorn and Pisit Jarumaneeroj, "An Application of Bilevel Optimization in Pricing and
Leasing Strategy," International Journal of Modeling and Optimization vol. 9, no. 1, pp. 12-17, 2019.