Pricing in Dynamic Vehicle Routing Problems

Miguel Andres Figliozzi (), Hani S. Mahmassani () and Patrick Jaillet ()
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Miguel Andres Figliozzi: Faculty of Economics and Business, Institute of Transport and Logistics Studies, University of Sydney, Sydney, NSW 2006, Australia
Hani S. Mahmassani: Department of Civil and Environmental Engineering, Martin Hall, University of Maryland, College Park, College Park, Maryland 20742
Patrick Jaillet: Department of Civil and Environmental Engineering, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139-4307

Transportation Science, 2007, vol. 41, issue 3, 302-318

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.

Keywords: freight transportation; dynamic vehicle routing; carrier fleet management strategies; pricing; carrier profitability; bidding strategies; auctions; electronic commerce (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ortrsc:v:41:y:2007:i:3:p:302-318

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