A Decomposition Approach for Single Allocation Hub Location Problems with Multiple Capacity Levels

In this paper we consider an extended version of the classical capacitated single allocation hub location problem in which the size of the hubs must be chosen from a finite and discrete set of allowable capacities. We develop a Lagrangian relaxation approach that exploits the problem structure and decomposes the problem into a set of smaller subproblems that can be solved efficiently. Upper bounds are derived by Lagrangean heuristics followed by a local search method. Moreover, we propose some reduction tests that allow us to decrease the size of the problem. Our computational experiments on some challenging benchmark instances from literature show the advantage of the decomposition approach over commercial solvers.