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Incorporating Pricing Decisions into the Stochastic Dynamic Fleet Management Problem

School of Operations Research and Industrial Engineering, Cornell University, Ithaca, New York 14853
Department of Operations Research and Financial Engineering, Princeton University, Princeton, New Jersey 08544
topaloglu{at}orie.cornell.edu
powell{at}princeton.edu

This paper shows how to coordinate the decisions on pricing and fleet management of a freight carrier. We consider a setting where the carrier announces its prices at the beginning of a certain time horizon and the load arrivals over this horizon depend on the announced prices. Assuming that the vehicle fleet is managed according to a particular class of fleet management models, we present a tractable method to obtain sample path-based directional derivatives of the objective function with respect to the prices. We use this information to search for a good set of prices. Numerical experiments show that our approach yields high-quality solutions.

Key Words: dynamic fleet management; pricing; dynamic programming
History: Received: July 2005; revised: September 2006; accepted: February 2007.

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