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Pricing in Dynamic Vehicle Routing Problems

Author

Listed:
  • 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)

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.

Suggested Citation

  • Miguel Andres Figliozzi & Hani S. Mahmassani & Patrick Jaillet, 2007. "Pricing in Dynamic Vehicle Routing Problems," Transportation Science, INFORMS, vol. 41(3), pages 302-318, August.
    • Handle: RePEc:inm:ortrsc:v:41:y:2007:i:3:p:302-318
    DOI: 10.1287/trsc.1070.0193
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    References listed on IDEAS

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