Profit Maximizing Hub Location Problems

Abstract

In this paper, we study profit maximizing hub location problems. We formulate mathematical models determining the location of hubs, designing the hub networks, and routing the demand in order to maximize profit. The profit is calculated by summing the total revenue minus total cost. Total cost includes the total transportation cost, the installation cost of hubs, and the cost of operating hub links. We consider all possible allocation strategies: multiple allocation, single allocation, and r-allocation. As an extension, for each allocation strategy, we also model the cases in which direct connections between non-hub nodes are allowed. To test and evaluate the performances of the proposed models, we use two well-known data sets from the literature. We analyze the resulting hub networks under various different parameter settings.