Pricing in dynamic vehicle routing problems

Miguel Andres Figliozzi, Hani S. Mahmassani, Patrick Jaillet

Research output: Contribution to journalArticlepeer-review

50 Scopus citations

Abstract

The principal focus of this paper is to study carrier pricing decisions for a type of vehicle routing problems defined in a competitive and dynamic environment. This paper introduces the vehicle routing problem in a competitive environment (VRPCE) as an extension of the traveling-salesman problem with profits (TSPP) to a dynamic competitive auction environment. In the VRPCE, the carrier must estimate the incremental cost of servicing new service requests as they arrive dynamically. The paper presents a rigorous and precise treatment of the sequential pricing and costing problem that a carrier faces in such an environment. The sequential pricing problem presented here is an intrinsic feature of a sequential auction problem. In addition to introducing the formulation of this class of problems and discussing the main sources of difficulty in devising a solution, a simple example is constructed to show that carriers' prices under first-price auction payment rules do not necessarily reflect the cost of servicing transportation requests. An approximate solution approach with a finite rolling horizon is presented and illustrated through numerical experiments, in competition with a static approach with no look-ahead.

Original languageEnglish (US)
Pages (from-to)302-318
Number of pages17
JournalTransportation Science
Volume41
Issue number3
DOIs
StatePublished - Aug 2007

Keywords

  • Auctions
  • Bidding strategies
  • Carrier fleet management strategies
  • Carrier profitability
  • Dynamic vehicle routing
  • Electronic commerce
  • Freight transportation
  • Pricing

ASJC Scopus subject areas

  • Civil and Structural Engineering
  • Transportation

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