This paper studies the economic desirability of UAV parcel delivery and its eect on e-retailer distribution network while taking into account technological limitations, government regulations, and customer behavior. We consider an e-retailer oering multiple same day delivery services including a fast UAV service and develop a distribution network design formulation under service based competition where the services oered by the e-retailer not only compete with the stores (convenience, grocery, etc.), but also with each other. Competition is incorporated using the Multinomial Logit market share model. To solve the resulting nonlinear mathematical formulation, we develop a novel logic-based Benders decomposition approach. We build a case based on NYC, carry out extensive numerical testing, and perform sensitivity analyses over delivery charge, delivery time, government regulations, technological limitations, customer behavior, and market size. The results show that government regulations, technological limitations, and service charge decisions play a vital role in the future of UAV delivery.
University of Waterloo April 2019