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Survivable Network Design 229preference), we can add the following constraints to mo<strong>de</strong>l (1):∑u k i − ∑ u k i ∗ ≤ M(x i − w i ) + ε(p i − p i ∗) ∀i ≠ i ∗ , i ∈ A (4a)k∈K k∈K∑u k i ∗ − ∑ u k i ≤ M(1 − (x i − w i )) + ε(p i ∗ − p i ) ∀i ≠ i ∗ , i ∈ A (4b)k∈K k∈K∑b i (x i − w i ) = B(4c)i∈A0 ≤ w i ∗ ≤ 1 ∀i ∗ ∈ A (4d)w i ∈ {0, 1} ∀i ∈ A − {i ∗ }, (4e)where ε is a very small constant. The addition of the constraints in (4) captures the flow-basedgreedy enemy interdiction mo<strong>de</strong>l. If there exists more initial flow on arc i than on i ∗ , thensince x i = 1, we have by (4a) that arc i must be interdicted (by setting w i = 0). If there is a tie,but i ∗ is preferred to i, then (4a) once again implies that w i = 0. Similarly, (4b) forces w i = x iif there is less flow on i than i ∗ , or if there is a tie when i has a lower priority than i ∗ .2.3 Optimal Interdiction CaseFinally, we consi<strong>de</strong>r the third case in which the enemy optimally disrupts arcs so as to minimizeour profit. We assume that the enemy has complete information of our network <strong>de</strong>signincluding arc capacities, flow revenues, and <strong>de</strong>mands. Given a network topology x, therefore,the enemy solves a continuous multicommodity flow network interdiction problem in amin-max structure. Taking the linear dual of the inner maximization problem, this problemcan be reformulated as a disjointly constrained bilinear program (BLP), in which the enemy’s<strong>de</strong>cision variables and our dual variables associated with arc capacity constraints constitutebilinear terms in the objective function.One important property of this BLP formulation is that a global optimum can be foundamong pairs of extreme points from respective feasible regions. In particular, the enemy hasa single knapsack constraint besi<strong>de</strong>s bounds on variables, and hence, each extreme point hasonly one basic variable while other nonbasic variables are set at one of their bounds 0 or 1.Exploiting this fact, Lim and Smith [4] recently proposed an optimal algorithm that solveslinearized mixed integer subproblems obtained by <strong>de</strong>signating one variable as basic. Thus, anexact solution can be i<strong>de</strong>ntified after solving |A| subproblems. (See [4] for <strong>de</strong>tails.)Note that there exists a finite number of pairs of extreme points for disjoint polyhedral setsof the bilinear programming problem. Let P <strong>de</strong>note the set of such pairs. Furthermore, letθ x (p) <strong>de</strong>note the objective value of the bilinear program at p ∈ P given x. Then, our network<strong>de</strong>sign problem can be formulated as follows.Maximizeũ ∑ ∑fi k u k i − ∑ c i x i + ṽzk∈K i∈A i∈Asubject to (1b), (1e), (1j), and u k i ≥ 0 ∀i ∈ A ∀k ∈ K (5b)z ≤ θ x (p) ∀p ∈ P (5c)(5a)z unrestricted. (5d)As a solution method, we prescribe the following cutting plane algorithm, BCPA that exploitsBen<strong>de</strong>rs cuts in an iterative fashion.

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