MATHEMATICAL

COMPUTER
MODELLING
PERGAMON Mathematical and Computer Modelling 34 (2001) 783-798
www.elsevier.nl/locate/mcm

Teleshopping versus Shopping:

A Multicriteria Network
Equilibrium Framework
A. NAGURNEY
Department of Finance and Operations Management
Isenberg School of Management, University of Massachusetts
Amherst, MA 01003, U.S.A.
JUNE DONG
School of Business, State University of New York at Oswego
Oswego, NY 13126, U.S.A.
P. L. MOKIITARIAN
Department of Civil and Environmental Engineering
University of California
Davis, CA 95616, U.S.A.

(Received January 2001; accepted February 2001)

Abstract-This paper proposes a network equilibrium framework for the conceptualization, mod-
eling, and analysis of consumers’ selection of teleshopping versus shopping for a frequently purchased
product. The shoppers or consumers are assumed to be multicriteria decision-makers with each class
of consumer characterized by a finite number of criteria which may include, for example, time, cost, op-
portunity cost, as well as security/safety, among other criteria. We construct the network structure of
the consumers’ choices with an explicit identification of the nodes, links, paths, and origin/destination
pairs, and allow each class of consumer or shopper to weight his criteria in an individual manner on
each link of the shopping network. The framework is the first to capture teleshopping versus shopping
alternatives with predictive equilibrium flows. @ 2001 Elsevier Science Ltd. All rights reserved.

Keywords-Teleshopping, Shopping, Internet, Multicriteria decision-making, Network equilib-

rium, Variational inequalities.

1. INTRODUCTION
The advent of telecommunications has transformed the manner in which people work and con-
duct their daily activities. In particular, the relationship between telecommunications and trans-
portation through such activities as telecommuting and teleshopping has been a topic of much
discussion and study by researchers (cf. [l] and the references therein) as well as practitioners
(cf. PI).
Although there is now a growing body of transportation literature on the topic of telecommut-
ing (see, e.g., [3]), the topic of teleshoppin g, a relatively newer concept, has received less attention

This research was supported by NSF Grant No. IIS-0002647.

0895-7177/01/$ - see front matter @ 2001 Elsevier Science Ltd. All rights reserved. Typeset by dM-Tj$
PII: SO895-7177(01)00099-l
784 A. NAGURNEYet al.

to date. Shopping denotes a set of activities in which consumers seek and obtain information
about products and/or services, conduct a transaction transferring ownership or right to use,
and spatially relocate the product or service to the new owner [l]. Teleshopping can refer to a
case in which one or more of those activities is conducted through the use of telecommunications
technologies. Attention today is focused on the internet as the technology of interest, and in-
deed internet-based shopping is increasing phenomenally (e.g., [4]). In this setting, teleshopping
represents the consumer’s role in “business-to-consumer” (B2C) electronic commerce. Although
we place this paper in the context of internet-based shopping, the framework presented here can
apply more broadly, such as to using the telephone to order from a catalog.
Several researchers have explored the plethora of forms in which shopping is available today
(cf. [5]), the direct and indirect functions fulfilled by shopping (e.g., [6]), and conceptual and em-
pirical models of the choice between store shopping and teleshopping (e.g., [7,8]). However, there
has been virtually no study of the transportation impacts of teleshopping beyond speculation
(e.g., [VW
In this paper, we take on the challenge of developing a conceptual framework for the modeling
and analysis of teleshopping versus shopping. This framework differs from previous models of
“shopping mode” choice by being network-based, essentially modeling shopping mode and desti-
nation (in a simplified sense) simultaneously. By relating the shopping choice to a representation
of the transportation/communication network, we obtain information about the spatial charac-
teristics of consumers’ choices, information that is crucial to improving our understanding of the
transportation and other spatial impacts of teleshopping.
The framework is network-based and has the following features.

1. It abstracts the critical components of shopping versus teleshopping decision-making, from

the “origin” nodes when consumers decide to take on the shopping experience, to the
“destination” nodes, which in this framework are physically the same as the origin nodes,
and at which they actually possess the desired product at, their locations.
2. Information is modeled by identifying nodes both virtual and physical where consumers
may acquire it.
3. Links may be “virtual” and may correspond to telecommunication links, be they for
information acquisition or actual order entry, or “physical” to denote actual transportation
of the consumer to the shopping sites (as well as to home following the completion of both
the search and the transaction) in addition to the delivery of the product.
4. Goods may be physical or electronic, with electronic goods being shipped electronically.
r The consumers
3. are multicriteria decision-makers and may take into consideration, for
example, time, cost, opportunity cost, as well as security issues in addition to the price of
the good in their shopping decision-making.
6. The framework is a network equilibrium one with flows corresponding to the number of
cons~m1ers selecting the particular modes of shopping.
As not,ed I)y Handy and Yantis [lo], the choice of shopping mode depends 011 an individual’s
prefereucc~s and attitudes and our approach, which is a multicriteria one, is consistent with this
percrptiou. Indeed. we allow each class of consumer to weight t,he criteria in an individual fashion
and. heuce. oue can then model consumers who weight time and cost associated with the shopping
cxpericncr more highly due, say, to time and budget. constraints. On the other hand, there may
IW indivitlllals who consider the opportunity cost associated with teleshopping to be high since
the product is not actually physically experienced and tested by the consumer; moreover, the
wf:iglit associated with security for teleshopping may be high for certain classes of consumers.
Multicriteria network models have been proposed in purely transportation settings by
Q~lauclt [ll] and Schneider (121 and explicitly consider that travelers may view several crite-
ria (1lOtilbly travel time and travel cost) as important in selecting their optimal routes of travel.
Rcccnt,ly, there has been a growing interest in the development of multicriteria traffic network
 Teleshopping versus Shopping 785

equilibrium models (cf. [13-17]), dating to the earlier work of Dial [18] and Dafermos [.19], who
introduced congestion into this problem setting. However, such an approach has not, hereto-
fore, been used in the setting of the examination of teleshopping versus shopping. Nevertheless,
our approach does build on the recent work of Nagurney, Dong and Mokhtarian (201 who devel-
oped integrated multicriteria network equilibrium models to formalize the conceptualisation of
telecommuting versus commuting (see also [21,22]).
The model developed here may be viewed as being complementary to the model of Nagurney,
Dong and Mokhtarian [20] in that both examine human activities surrounding transportation
and telecommunication tradeoffs with the former focusing on the activity of shopping and the
latter--on commuting. The model proposed in this paper, however, has the following original
features.
(a) We no longer limit the number of criteria facing a decision-maker to two or three and
consider, instead, the more general situation of a finite number of criteria, where the
number is as large (or small) 8s necessary. Of course, each class of consumer can weight
the criteria differently. Also, for the sake of generality and modeling flexibility, we allow
the consumers’ weights to be both class-dependent and link-dependent.
(b) We demonstrate how human, that is, consumer choices can be mapped into purchases of
goods and, ultimately, their delivery, within a consistent network equilibrium framework
with predictive capabilities.
(c) We incorporate information into the model explicitly.
The paper is organized as follows. In Section 2, the multicriteria network equilibrium model
of teleshopping versus shopping is developed. In Section 3, we derive the variational inequality
formulation and provide qualitative properties of the equilibrium pattern. In Section 4, we
propose a computational procedure, along with convergence results. We then apply the algorithm
in Section 5 to several illustrative numerical examples. Our summary and conclusions are given
in Section 6.

2. THE MULTICRITERIA NETWORK EQUILIBRIUM

MODEL FOR SHQPPING VERSUS TELESHOPPING
In this section, we develop the multicriteria network equilibrium model for shopping versus
teleshopping. We first identify the structure of the shopping network framework and describe
the nodes, links, origin/destination pairs, and paths. We then present the notation for the costs,
demands, and flows.
We assume that consumers are engaged in the purchase of a product which they do so in
a repetitive fashion, say, on a weekly basis. The product may consist of a single good, such
as a book, or a bundle of goods, such as food. We also assume that there are locations, both
virtual and physical, where the consumers can obtain information about the product. The virtual
locations are accessed through telecommunications via the internet whereas the physical locations
represent more classical shopping venues such as stores and require physical travel to reach.
The consumers may order/purchase the product, once they have selected the appropriate lo-
cation, be it virtual or physical, with the former requiring shipment to the consumers’ locations
and the latter requiring, after the physical purchase, transportation of the consumer with the
product to its final destination (which we expect, typically, to be his residence or, perhaps, place
of work).
For definiteness and clarity, we refer the reader to the network conceptualization of the prob-
lem given in Figure 1 and further identify the above concepts with the corresponding network
component.
Note that the network depicted in Figure 1 consists of four levels of nodes with the first (top)
level and the last (bottom) level corresponding to the locations of the consumers involved in the
purchase of the product. There are a total of 2m + 2N nodes in the network with the number
786 A. NAGURNEY et al.

Locations of Consumers/Shoppers Before Shopping Experience

...

Physical
Transaction Links

Transportation Links

Locations of Consumers/Shoppers After Shopping Experience

Figure 1. Network framework for shopping versus teleshopping.

of consumer locations given by m and the number of information locations given by N, where N
also corresponds to the number of shopping sites. We denote the consumer location nodes (before
the shopping experience) at the top level of nodes by: 1,. . . , m, with a typical such node denoted
by j. We emphasize that each location may have many consumers. The second level of nodes,
in turn, corresponds to the information locations (and where the transactions also take place),
with nodes: m + l,... , m + n representing the virtual or internet-based locations and nodes:
m+n+ l,... , m + N denoting the physical locations of information corresponding to stores,
for example. Such a typical node is denoted by K. The third level of nodes corresponds to the
completion of the transaction with nodes: m + n + 1,. . . , m + N + n corresponding to internet
sites where the product could have been purchased (and where we have assumed information has
also been made available in the previous level of nodes) and nodes: m + N + n. + 1,. . . , m + 2N
corresponding to the completion of the transaction at the physical stores. A typical such node is
denoted by 1. The bottom level of the nodes are enumerated as: m + 2N + 1,. . . ,2m + 2N and
denote the locations of the consumers following the completion of the shopping experience (here
assumed to be the same as their original locations before beginning the shopping experience).
We now discuss the links connecting the nodes in the network in Figure 1. There are four sets
of links in the network. A typical link (j, K) connecting a top level node (consumers’ location) j
to an information node K at the second level corresponds to an access link for information. The
links terminating in nodes: m + 1, . . . , m + n of the second level correspond to telecommunication
access links and the links terminating in nodes: m + n + 1, . . . , m + N correspond to (aggregated)
transportation links.
As can be seen from Figure 1, from each second tier node K, there emanates a link to a node 1,
which corresponds to a completion of a transaction node. The first mn such links correspond to
virtual orders, whereas the subsequent links denote physical orders/purchases. Finally, we have
links emanating from the transaction nodes to the consumers’ (final) destination nodes, with the
 TeleshoppingversusShopping 787

links emanating from transaction nodes: m + N + 1,. . . , m + N + n denoting shipment links

(since the product, once ordered, must be shipped to the consumer), and the links emanating
from transaction nodes: m + N + n + 1,. . . , 2m + 2N representing physical transportation links
to the consumers’ destinations. Note that, in the case of the latter links, the consumers (after
purchasing the product) transport it with themselves, whereas in the former case, the product
is shipped to the consumers. Observe that in our network framework, we explicitly allow for
alternative modes of shipping the product which is represented by an additional link (or links)
connecting a virtual transaction node with the consumers’ location.
REMARK. It is important to highlight that the above network construction captures the electronic
dissemination of goods (such as books or music, for example) in that an alternative shipment link
in the bottom tier of links may correspond to the virtual or electronic shipment of the product.

2.1. The Notation

Having fixed the above ideas, we are now ready to present the notation which will allow us to
clarify the costs, demands, and flows on the network. In addition, we introduce the behavior of
the shoppers, who are assumed to be multicriteria decision-makers. Henceforth, we refer to the
network in Figure 1 as the shopping network.
We consider the network depicted in Figure 1, which we denote by G = [JV, L], where N
denotes the set of nodes in the network and L: the set of directed links. The origin nodes in the
network are the top level nodes corresponding to the consumers’ locations and the destination
nodes are the bottom level nodes. An origin/destination pair in this network corresponds to a
pair (j, m + 2N + j), for j = 1,. . . ,m. Thus, we assume that the shopper originates from the
same location to which the product is delivered. Let a denote a link of the network connecting
a pair of nodes and let p denote a path, assumed to be acyclic, consisting of a sequence of links
connecting an origin/destination (O/D) p air of nodes. There are nL links in the network and np
paths. Let W denote the set of m O/D pairs. The set of paths connecting the O/D pair w is
denoted by P, and the entire set of paths in the network by P.
In the shopping network framework, a path consists of a sequence of choices made by a con-
sumer. Forexample, thepathconsistingofthelinks: (1,m+l),(m+l,m+N+1),(m+N+1,m+
2N + 1) would correspond to consumers located at location 1 accessing virtual location m + 1
through telecommunications, placing an order at the site for the product, and having it shipped to
them. The path consisting of the links: (m, m + N), (m + N, m + 2N), and (m + 2N, 2m + 2N),
on the other hand, would reflect that consumers at location m drove to the store at location
m + N, obtained the information there concerning the product, completed the transaction, and
drove home. Note that a path represents a sequence of possible options for the consumers. We
will utilize flows to depict how many consumers actually select the particular paths with a zero
flow on a path corresponding to the situation that no consumer elects to choose that particular
sequence of links.
We assume that there are k classes of consumers in the network with a typical class denoted
by i. Let ft denote the flow of class i on link a and let xb denote the nonnegative flow of class i
on path p. The relationship between the link loads by class and the path flows is

f: = c +Lp, Vi, VaEC, (1)

PEP

where 6,, = 1, if link a is contained in path p, and 0, otherwise. Hence, the load of a class of
consumer on a link is equal to the sum of the flows of the class on the paths that contain that
link.
In addition, let fa denote the total flow on link a, where

La=&:, i=l
VaEC. (2)
788 A. NAGURNEY et al.

Thus, the total load on a link is equal to the sum of the loads of all classes on that link. Group the
class link loads into the knL-dimensional column vector f with components: {f,‘, . . . , f:, . . . , fi,“,
. . . , f$} and the total link loads: {fa,. . . , fn} into the nL-dimensional column vector f. Also,
group the class path flows into the Icnp-dimensional column vector 2 with components: {#,, , . . . ,
Xi,,> 1.
Note that in this network framework, we seek to determine the number of individuals who
select shopping options in the case of a specific product. We assume that the demand for the
product for each class of consumer is fixed and known a priori. We let the demand for the
product associated with origin/destination (O/D)p air w and class i be denoted by db and let
P, be the set of paths connecting the origin/destination pair w.
Clearly, the demands must satisfy the following conservation of flow equations:

d; = c x;, Vi, VW, (3)

that is, the demand by a consumer class at a location must be equal to the sum of the flows of
the class of consumer over all the available shopping options.
We are now ready to describe the functions associated with the links. In particular, we assume
that there are H criteria which the consumers may utilize in their shopping decision-making with
a typical criterion denoted by h. We assume that Cha denotes criterion h associated with link a,
where we have that
&a = Cha(f), Vu E 13, (4

where Cha is assumed to be a continuous function.

For example, Criterion 1 may be time, in which case we would have

Cl, = Cl,(f) = h(f), QaEC, (5)

where ta(f) denotes the time associated with traversing link a. In the case of an access link,
we would expect the function to be low for telecommunications and higher for transportation.
Another relevant criterion for shopping would be cost, that is, we may have

c2, = C,,(f) = ccJw> Qa E L, (6)

which would reflect (depending on the link a) an access cost, transportation or shipment cost, or
product price. In addition, another relevant criterion in evaluating teleshopping versus shopping
is opportunity cost since one may expect that this cost would be high in the case of teleshop-
ping (since one cannot physically experience and evaluate the product) and lower in the case of
shopping. Hence, the third criterion may be opportunity cost where

C3a = C3aLf) = ocx(.f)7 QaEL:, (7)

with oa(f) denoting the opportunity cost associated with link a. Finally, a shopper may wish to
associate a security cost with teleshopping, in which case the fourth criterion may be

C4a = C4a(f) = sdf), QaEL, (8)

where s,(f) denotes a security cost measure associated with link a.

We assume that each class of shopper has a potentially different perception of the tradeoffs
among the criteria, which are represented by the nonnegative weights: w:,, . . . , wka. Hence,
wi,, denotes the weight on link a associated with Criterion 1 for class i, wia denotes the weight
associated with Criterion 2 for class i, and so on. Observe that the weights are link-dependent
 Teleshopping versus Shopping 789

and can incorporate specific link-dependent factors which could include, for a particular class,
factors such as safety, convenience, and sociability.
We then construct the generalized cost of class i associated with link a and denoted by ui as

Vi, VaEL. (9)

h=l

In lieu of (2), we may write

._
u; = u; f 0 ) Vi, Va E C, (10)

and group the generalized link costs into the knL-dimensional column vector u with components:
{UA,..‘) UX,,)‘..) U: ,..., Ui,,}.
Link-dependent weights were introduced by Nagurney and Dong [22] to provide a greater degree
of generality and flexibility in the modeling of travel decision-making. Nagurney, Dong and
Mokhtarian [20], in turn, used link-dependent weights but assumed three criteria, in particular,
travel time, travel cost, and opportunity cost, in their integrated multicriteria network equilibrium
models for telecommuting versus commuting.
Let vi denote the generalized cost of class i associated with path p in the shopping network
where
vi = Cu6 (j) hap, Vi, Vp. (11)
aEL

Hence, the generalized cost associated with a class and a path is that class’s weighted combination
of the various criteria on the links that comprise the path.
Note, from the structure of the criteria on the links as expressed by (4) and the generalized
cost structure assumed for the different classes on the links according to (9) and (lo), that we
are explicitly assuming that the relevant criteria are functions of the flows on the links where
we recall that the flows correspond to the number of shoppers of a particular class that selects a
particular link. Indeed, it is not unreasonable to assume that criteria which would be relevant,
for example, to the access links (cf. Figure 1) would be flow-dependent and would be a function of
t,he number of shoppers traveling and/or accessing the information sites. Indeed, we can expect
more congestion on the telecommunication links as more shoppers seek information via this route;
similarly, we can expect more traffic congestion as more shoppers elect to travel to the shop sites.
Moreover, one can expect a similar kind of flow dependence (as well as congestion) as shoppers
search either virtually or physically for information and the products. Furthermore, one can
expect that the criteria associated with the transaction links will also be flow-dependent, as in
the case: for example, of the price of the product depending on the number of consumers that
seek to purchase the product at the particular site. Finally, clearly, the criteria associated with
the shipment,/transportation links can be expected to be flow-dependent as well.

2.2. The Behavioral Assumption

Since we have assumed repetitive shopping for the product, the behavioral assumption that we
propose is that shoppers choose their shopping paths so that their generalized costs are minimized.
Specifically. the behavioral assumption utilized is similar to that underlying traffic assignment
models (see also. [23]) in that we assume that each cl~sss of shopper in the network selects a path
so as to minimize the generalized cost on the path , given that all other shoppers have made their
choices.
In particular, we have the following network equilibrium conditions for the problem outlined
‘above.
790 A.NAGURNEYet al.

Multicriteria network equilibrium conditions

For each class i, for all O/D pairs w E W, and for all paths p E P,,,, the flow pattern 2* is said
to be in equilibrium if the following conditions hold:

=
( )i
f-* XL, if 5: > 0,
%
2 XL, if xi* = 0.
(12)

In other words, all utilized shopping paths by a class connecting an O/D pair have equal and
minimal generalized costs. The term XL is simply an indicator whose value is not known a priori.

3. VARIATIONAL INEQUALITY FORMULATION

AND QUALITATIVE PROPERTIES
In this section, we present the variational inequality formulation of the equilibrium condi-
tions (12) along with some qualitative properties of the solution to the variational inequality,
including some uniqueness results.
Specifically, in light of Theorem 1 in Nagurney [21], we can write down immediately the vari-
ational inequality formulation below.

THEOREM 1.VARIATIONAL
INEQUALITY
FORMULATION.Thevariationalinequalityformulation
of the multicriteria network model satisfying equilibrium conditions (12) is given by: determine
$* E K, satisfying

equivalently, in standard variational inequality form (cf. 1241)

(F(X*)T,X - x*) 2 0, vx E Ic, (13b)

where F s u, X E f, and K = (2 1 3 i 2 0, and satisfying (I) and (3)).

We now present some qualitative properties of the solution to variational inequality (13b). In
particular, we have immediately from the standard theory of variational inequalities (see [24,25])
that there exists a solution to problem (13) since the feasible set K is compact and the generalized
link cost functions are assumed to be continuous. Hence, we have the following.

THEOREM 2. EXISTENCE.A solution $* to variational inequality (13a), or equivalently, (13b)

is guaranteed to exist.
We now turn to addressing the uniqueness of the equilibrium pattern. In particular, consider
a generalized class cost function on a link a for class i of the special form

u; = Wz;,& + w;,C& + . . . + wtff+ C~H-I), + (I- gda) Cfh, Vi, Va EC, (14)

where
Cha = %X(f) + c/La, VaEC, Vh, (15)
that is, each criterion differs from any other on a link solely by the fixed cost term cha. Each of
the weights preceding the respective criterion is assumed to be nonnegative.
Assume now that g(f), where g(f) is the column vector with components: {ga, . . . ,gn,,}, is
strictly monotone, that is,

((g(P) -g(.f’))‘,P-.f’) 20, Yf’J2E~, f1 #f2. (16)

Then we have the following.
 Teleshopping
versusShopping 791

THEOREM 3. UNIQUENESS OF THE EQUILIBRIUMTOTAL LINK LOAD PATTERN IN A SPECIAL

CASE. The total link load pattern f * induced by the solution J* to variational inequality (13a),
in the case of generalized class link cost functions of form (14) and (15) is guaranteed to be
unique, provided that g(f) is strictly monotone as in (16).
PROOF. Assume that there are two solutions to variational inequality (13a), given, respectively,
by J’ and $” with total link loads corresponding to f’ and f”. Then, we must have that J’
satisfies

& (al U’) + 4 + w& (ga (f’) + C2a) + *** + (

x [f: - f:] 2 0, VJE K.

Similarly, we must have that J” satisfies

w;a (sa (f”) + Cla) + w;a (aa (f”) + C2a) + (18)

x [fj - ,,,,I 2 0, VjEK.

Let j = $” and substitute into (17). Also, let J = p and substitute into (18). Adding the two
resulting inequalities yields, after algebraic simplification:

C(Sa(f’) - &(f”)) x (Z - fI’) I 0. (19)

aEf
But, (19) is in contradiction of the assumption of strict monotonicity of g. Hence, we must
have that f’ = f”. I
In the subsequent theorem, we establish monotonicity of the function F (see (13b)) in the case
of generalized link cost functions of the special form (14) and (15).
THEOREM 4. MONOTONICITY IN A SPECIAL CASE. Assume that the generalized link cost
functions are of form (14) and (15), where the monotonicity condition given by

((L?(f1)-9(f2))T,f1-f2)Lo, Vf1,f2EK: (20)

holds. Then, the function F that enters the variational inequality (13b) with such generalized
link cost functions is monotone.
PROOF. We must show that

((F(Xl) -(X2))T,X1-X2) 20, VX’,X2G, (21)

where F, X, and K are as defined following (13b).
Note that

((F (Xl) - F (X2))T, X’ - X2)

=
Wfa (% (f ‘) + Cla) + f-da (Sa (f ‘) + Cza)
/ H-l \ 1

+“*+ (I- z-k) (g.(f')+cHa)]

(22)

- wZ;a
(ga(f2) + Cla)+ & (ga(f”) + a) + **. + (ga (f2) + CHa)
]

x [fi’ - fi2] = 2 c [ga(f ‘) - sa(f 2)] x [fal- fa2]’

i=l aEL
792 A. NAGURNEY et al.

But, (22) must be greater than or equal to zero, under assumption (20), and hence, the con-
clusion follows. I
Also, we have the following result.

THEOREM 5. LIPSCHITZ CONTINUITY. If the generalized link cost functions have bounded
first-order derivatives, then the function F that enters variational inequality (13b) is Lipschitz
continuous, that is, there exists a constant L > 0, such that

IIF (Xl) - F (X2)11L L /IX’ - X211, VX1,X2 E K.

PROOF. See the proof of Lemma 2 in [21].

Note that Theorem 5 holds for any generalized link cost functions such that they have bounded
first-order derivatives, whereas Theorem 4 establishes monotonicity in a special case of the func-
tions. Nevertheless, F may be monotone in the case of other generalized link cost functions.
Nagurney [21] presents an example, in the context of a multicriteria traffic network equilibrium
problem with fixed travel demands, in which there are two classes of users of the network and two
criteria, with a monotone F for that problem, and the link cost functions are not of forms (14)
and (15).

4. THE ALGORITHM
In this section, an algorithm is presented which can be applied to solve any variational inequal-
ity problem in standard form (see (13b)), that is, determine X’ E Ic, satisfying

(F(X*)T,X-X*) LO, VXEK. (24

The algorithm is guaranteed to converge provided that the function F that enters the variational
inequality is monotone and Lipschitz continuous (and that a solution exists). The algorithm is
the modified projection method of Korpelevich [26].
The statement of the modified projection method is as follows, where 7 denotes an iteration
counter.

Modified Projection Method

STEP 0. INITIALIZATION. Set, X0 E K. Let 7 = 1 and let y be a scalar such t,hat 0 < y < l/L,
where L is the Lipschitz continuity constant (cf. [26]; see also (23)).
STEP 1. COMPUTATION. Compute _%7 bv_ solving the variational inequality subproblem

x7) 2
0 x7 + yF (X7-1)T - X7-1)T ,X - 0, VXEK.

STEP 2. ADAPTATION. Compute X7 by solving the variational inequality subproblem

((X’+yF(X7)T-X7-1)T,X-X7)>0. VXcK.

STEP 3. CONVERGENCE VERIFICATION. If max IXF - XT-‘1 5 E, for all 1, with E > 0, a
prespecified tolerance, then stop; else, set 7 =: 7 + 1, and go to Step 1.
We now give an explicit statement of the modified projection method for the solution of vari-
ational inequality problem (13a) for the multicriteria network equilibrium model.
 Teleshopping versus Shopping 793

Modified Projection Method for the Solution of Variational Inequality (13a)

STEP 0. INITIALIZATION. Set j” E Ic. Let 7 = 1 and set y such that 0 < y < l/L, where L is
the Lipschitz constant for the problem.

STEP 1. COMPUTATION. Compute f E K: by solving the variational inequality subproblem

2c
i=l c4E.c
pii7 + y (?A:
(p-1)) - p) x (fi - f(7) 2 0, V’JEK. (27)

STEP 2. ADAPTATION. Compute f7 E K by solving the variational inequality subproblem

&&;7++(?7)) -fi7-‘>x (f:-f:7) 20, Yf= (28)

STEP 3. CONVERGENCE VERIFICATION. If Ifi’ - ft7-‘I 5 E, for all i = 1,. . . , k, and all a E C,
with E > 0, a prespecified tolerance, then stop; otherwise, set 7 := 7 + 1, and go to Step 1.
We now state the convergence result for the modified projection method for this model.

THEOREM 6. CONVERGENCE. If the generalized link cost functions are monotone and have
bounded first-order derivatives, then the modified projection method described above converges
to a solution of variational inequality (13a).
PROOF. According to Korpelevich [26], the modified projection method converges to a solution
of the variational inequality problem of form (13b) provided that the function F that enters the
variational inequality (see (13b)) is monotone and Lipschitz continuous and a solution exists.
Existence of a solution for the model has been established in Theorem 2 and Lipschitz continuity
in Theorem 5. I
Hence, it follows from Theorems 4 and 5, that if the generalized link cost functions are of
form (14) and (15) with g being strictly monotone, and have bounded first-order derivatives,
then the modified projection method is guaranteed to converge to a solution of variational in-
equality (13a).
This algorithm was proposed by Nagurney [21] and applied for the computation of the mul-
ticriteria traffic network equilibrium in the case of a model with two criteria and fixed travel
demands. Here, however, we consider the more general situation in which there can be a finite
number of criteria associated with each class of consumer and each link. Moreover, here we allow
the weights to be not only class-dependent but also link-dependent and, consequently, the model
in this paper directly extends the model of Nagurney [21] to the case of a finite number of criteria
and to the setting of shopping versus teleshopping.

5. NUMERICAL EXAMPLE
In this section, we present a numerical example for which we then compute the equilibrium flow
pattern using the modified projection method described in the preceding section. Specifically, we
consider a situation in which there are consumers located at two locations with the possibility of
shopping virtually through telecommunications at two sites and physically at two other sites. We
assume that there are two classes of shoppers. The shopping network for the problem is given
in Figure 2. The network consists of two origin nodes at the top; two destination nodes at the
bottom, with two O/D pairs given by: wi = (1,11) and wg = (2,12).
There is a total of 20 links in the network, where eight links (in the first set) are access links,
four links (in the second set) are transaction links, and eight links (in the final set of links) are
shipment/transportation links. In the first set of links, four links represent access links to the
virtual sites through telecommunications and the remaining four links correspond to access links
794 A. NAGIJRNEY
et al.

to the physical sites through transportation. The links have been enumerated in Figure 2 for
data presentation purposes.
The modified projection method was coded in FORTRAN and the system used was the IBM
SP2 located at the Computer Science Department at the University of Massachusetts at Amherst.
We report both the CPU time (exclusive of input and output) and the number of iterations. We
used the equilibration algorithm of Dafermos and Sparrow (271 to solve the embedded quadratic
programming problems corresponding to variational inequality subproblems (27) and (28) since
the feasible set is that of a network.
The convergence criterion was that the absolute value of the path flows at two successive
iterations was less than or equal to 6 with E set to 10e5. The y parameter in the modified
projection method was set to .Ol. The demand for the product for each class of consumer was
equally distributed among the paths connecting the O/D pair to construct the initial feasible
path flow (and link load) pattern.

Locations of Consumers/Shoppers

Locations of Consumers/Shoppers

Figure 2. The shopping network framework for the numerical example.

Denoting the O/D pairs by WI = (1,11) and 202 = (2,12), the demands for the products by
the two classes were: dLl = 80, d;, = 160, and d& = 150, &, = 75.
There were four paths connecting
each O/D pair. The paths connecting O/D pair ‘~1 were:
p1 = (1,9,13), P2 = 15), P3 = (3,11,17), and p4 = (4,12,19), whereas the paths connecting
(2,107

O/D pair 202 were: p5 = (5,9,14), p6 = (6,10,16), ~7 = (7,11, la), and PS = (8,12,20). we
assumed that th& were three criteria associated with each link and consisting, respectively, of:
time (Criterion I), monetary cost (Criterion 2), and an opportunity cost (Criterion 3).
The weights were constructed as follows: for Class 1, the weights were: wi.1 = .25, UJ.& = .25,
& = 1.0, w;,~ = .25, w;?~ = .25, wiS2 = 1.0, w:.~ = .4, w;,~ = .4, w;>3 = 1.0, w:,q = -5,
 Teleshopping versus Shopping 795

For Class 2, we have the following: U& = .5, w& = .5, w& = .5, IL& = .5, ~$2 = .4,
W& = .4, & = .4, 20;s = .3, w;s = .7, w;* = .3, w$‘, = .2 w& = .6, w:a = .5, 20;s = .4,
w;‘s = .5, w:‘s = .7 w;‘s = .6, w& = .7, 2~:‘~ = .4 Wz”‘T= .3: w& = .a, w&J = .3, w&j = .2,
?&s = .6, W&, = (2, ?$ = 3, &;,+ = .9,‘?&, ‘= .i, W$ =' .4, W+ ‘= 3, W& = 4
w+ = .5, W&l = .9, WI,~~ = .5, W2,12 = -5, W&s = .7, Wl,l3 = -4, w2,1s = .6, w&s = .9,
WI,+ = .3, W&d = .4, w&4 = 1.0, w;,Ja = .2, w&s = .3, U&5 = .2, u&s = 1.0, w$ui = 1.0,
w;,,, = 1.0, w& = 1.0, w&7 = 1.0, w&7 = 1.0, U&s = 1.0, W&B = 1.0, W&j = 1.0,
WI,+) = 1.0, w&g = 1.0, w&9 = 1.0, w:,3 = 1.0, t&O = 1.0, W&J = 1.
The generalized link cost functions were constructed according to (9).
The time functions and the cost functions were given by

/ tl(f) = .00005f,4 + lfl + If2 + 5, ts(f) = .00003f; + If2 + .5fl + 1,

t3(f) = .00005f,4 + 4f3 +1f4 +1, t4(f) = .00003f,4 + 6f4 + 2f6 + 4,

t5(f) = lf5 + 1, t6(f) = .00007f,4 + 1fs + .5fs + 1,

t7(f) = 8f7 + 7, ts(f) = .00001&j + 7fs + 3f5 + 6,

ts(f) = 2f9 + 1, ho(f) = .00003f,4, + 2flO + f9 + 1,

h(f) = .~0004f,4 + 2fll + fl0 + 4, h2(f) = .00002f,4, + vi2 + fll + 2,

h3(f) = .OOOO3f,4, + 9f13 + 3fl4 + 3, h4(f) = 5f14 + 3,

hs(f) = 6f15 + 4, h6(f) = Iof + 1%

t17(f) = 5f17 + 10, h8(f) = fl8 + 20,

h9(f) = 6fl9 + 20, tzo(f) = IOf + 15,

and

Cl(f) = .00005f,4 + 2fi + fs + 1, C2(f) = .00003f,4 + 2f2 + fl + 1,

C3(f) = .00005f,4 + 3f3 + .5f4 + 3, C4(f) = .00003f,4 + 7f4 + 3f3 + 1,

C5(f) = f5 + 2, C6(f) = .00007f,4 + 2f6 + f5 i- 1,

c7(f) = 4f7 + 6, %(f) = ~~~~~~f,4 + 4f8 + 2f7 + 1,

c9(f) = 2f9 + 1, ClO(f) = .00003f& + 2flO + fg + 1,

a(f) = .00004.& + 4fll + 2fl2 + 2, C12(f) = .00002f,4, + 4fl2 + 2fll + 1,

C13(f) = .00003f,4, + 3fl3 + f14 + 2, C14(f) = 4fl4 + 2,

C15(f) = 4f15 + 1.0, cl6(f) = 2fl6 + 10,

C17(f) = 5fl7 + 1% cl8(f) = 6fis + 0,

c19(f) = 5fl9 + 10, C2o(f) = 4f20 + 10.

The opportunity cost functions on the links were as follows

m(f) = 2fl + 4, 02(f) = 3f2 +2, 03(f) = f3 + 1,

04(f) = f4+1, 05(f) = 2f5 + 5, 06(f) = 3f6 +6,

07(f) = f7+lr Odf) = If8 + 1, 09(f) = 5f9 + 12,

010(f) = llfl0 + 11, 011(f) = lfll + 1, %2(f) = If12 + 1,

013(f) = f13 + 11, 014(f) = 6fl4 +21, 015(f) = 7fl5 + 14,

016(f) = 5fl6 + 10, 017(f) = f17 +2, 016(f) = 2fl8 + 1,

796 A. NAGURNEY et al.

019(f) = fl9 + 1, 020(f) = f20 + 1.

The modified projection method converged in .65 CPU seconds and required 382 iterations for
convergence. It yielded the following equilibrium multiclass link load pattern:

fy = 0.0000, f;* = 62.5658, fj* = 0.0000, f;* = 17.4343,

f;* = 77.0112, f;* = 0.0000, f;* = 32.9406, fs’*= 50.0481,

fg’* = 77.0112, f,‘,’ = 62.5658, f,‘,* = 32.9406, f,‘,* = 67.4824,

J-;s* = 0.0000, fi4* = 77.0112, f&* = 62.5658, f;(j* = 0.0000,

f;7* = 0.0000, f,‘,* = 32.94343, fig* = 17.4343, fro* = 50.0481,
fi”* = 64.7230, f;* = 0.0000, f;* = 53.1308, fi* = 32.1461,
f;* = 50.5265, f;* = 24.4735, f;* = 0.0000, f;* = 0.0000,
f;* = 115.2495, ffo* = 24.4735, ffl* = 53.1308, ff2* = 32.1461,
f&* = 64.7230, ff4* = 50.5265, f&* = 0.0000, f&* = 24.4735,

f&* = 53.1308, f&* = 0.0000, ffg* = 32.1461, f&O*= 0.0000,

with total link loads given by

f; = 64.7230, f; = 62.5658, f; = 53.1308, f; = 49.5804, f; = 127.5378,

f; = 24.4735, f; = 32.9406, f; = 50.0481, f; = 192.2608, fTo= 87.0393,
f& = 86.0714, fT2= 99.6285, f& = 64.7230, fT4= 127.5378, f& = 62.5658,
f& = 24.4735, fF7= 53.1308, f& = 32.9406, fTg= 49.5804, flo = 50.0481,

and induced by the equilibrium multiclass path flow pattern

x;** = 0.0000, xy = 62.5658, xi3* = 0.0000, XP4

*
= 17.4343,

x;,* = 77.0112, XL* = 0.0000, =

xi,* 32.9406, XL* = 50.0481,

xzl* = 64.7230, xEg* = 0.0000, xi3* = 53.1308, xi4* = 32.1461,

2 *
xi5* = 50.5265, x;~* = 24.4735, 5
P7
= 0.0000, xi8* = 0.0000.

The generalized path costs were as follows.

For Class 1, O/D pair wi

v;, = 3678.6011, v;* = 3206.7161, V1 =

PS
3515.6101, V1
P4 = 3206.7881.

For Class 1, O/D pair wz

VA5= 3094.0203, v;~ = 3159.5784, v;, = 3093.9326, vbs = 3093.9309.

For Class 2, O/D pair wi

v;, = 3480.9763, vi2 = 3510.7102, v& = 3480.9822, u;* = 3480.8848.

For Class 2, O/D pair wz

v;5 = 2511.1033, w;, = 2511.1975, v;, = 3135.4097, VE8= 3537.0144.

 Teleshopping versus Shopping 797

6. SUMMARY AND CONCLUSIONS

In this paper, we have proposed a rigorous framework for the investigation of the transportation
impacts of teleshopping. The framework is network-based and assumes that the shoppers or
consumers are multicriteria decision-makers. Each class of consumer is characterized by a finite
number of criteria which may include, for example, time, cost, or opportunity cost, among other
criteria.
We identify the network underlying the shopping experience with an explicit identification of
the nodes. links, paths, and origin/destination pairs, and describe the shopping options available.
The framework can handle not only physical goods but also electronic goods. Our focus is on
shopping versus teleshopping in which telecommunications play a critical role. Although we place
our research in the context of internet-based shopping, the framework presented here can apply
more broadly.
We define the governing equilibrium concept, under the assumption that the good or goods are
frequently purchased goods and show that the governing equilibrium conditions satisfy a finite-
dimensional variational inequality problem. We provide qualitative properties of the equilibrium
and propose a computational method along with convergence results. The algorithm is then
applied to a particular shopping network example.
The multicriteria network equilibrium framework proposed here is the first to capture teleshop-
ping versus shopping alternatives with predictive equilibrium flows.

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