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Price-Directed Control of a Closed Logistics Queueing Network

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  • Daniel Adelman

    (Graduate School of Business, University of Chicago, Chicago, Illinois 60637)

Abstract

Motivated by one of the leading intermodal logistics suppliers in the United States, we consider an internal pricing mechanism for managing a fleet of service units (shipping containers) flowing in a closed queueing network. Nodes represent geographic locations, and arcs represent travel between them. Customer requests for arcs arrive over time, and the problem is to find an accept/reject policy that maximizes the long-run time average reward rate from accepting requests. We formulate the problem as a semi-Markov decision process and give a simple linear program that provides an upper bound on the optimal reward rate. Using Palm calculus, we derive a nonlinear program that approximately captures queueing and stockout effects on the network. Using its optimal Lagrange multipliers, we construct a simple functional approximation to the dynamic programming value function. The resulting policy is computationally efficient and produces superior economic performance as compared with other policies. Furthermore, it provides a methodologically grounded solution to the firm's internal pricing problem.

Suggested Citation

  • Daniel Adelman, 2007. "Price-Directed Control of a Closed Logistics Queueing Network," Operations Research, INFORMS, vol. 55(6), pages 1022-1038, December.
    • Handle: RePEc:inm:oropre:v:55:y:2007:i:6:p:1022-1038
    DOI: 10.1287/opre.1070.0408
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    References listed on IDEAS

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    10. Jeffrey I. McGill & Garrett J. van Ryzin, 1999. "Revenue Management: Research Overview and Prospects," Transportation Science, INFORMS, vol. 33(2), pages 233-256, May.
    11. Daniel Adelman, 2004. "A Price-Directed Approach to Stochastic Inventory/Routing," Operations Research, INFORMS, vol. 52(4), pages 499-514, August.
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