Pricing mobility services under decision-dependent demand uncertainty: a carsharing case

Abstract

The problem of pricing mobility services has attracted significant attention. In most studies, uncertain demand is modeled as an exogenous random variable with known distribution. This assumption overlooks the likely effect of prices on user adoption decisions. To address this dependency, we formulate the pricing problem as a stochastic program with decision-dependent demand uncertainty. Specifically, we make the non-standard assumption that the probability distribution of demand depends on pricing decisions. We show that the problem can be written as a mixed-integer linear program whose size is exponential in the input parameters. To find exact numerical solutions we specialize the L-shaped method for stochastic programs with decision-dependent uncertainty. In particular, we devise efficient separation routines by proving closed-form primal and dual solutions to the involved subproblems. In addition, we develop problem-specific valid inequalities and cut-sharing mechanisms which significantly improve convergence. We show that the method outperforms by far a commercial solver used to solve the monolithic formulation. Furthermore, in a case study based on a real-world carsharing system, we show that incorporating decision-dependent uncertainty improves expected profits by 8.39% compared to a benchmark that considers deterministic price-elastic demand, and by 8.53% compared to a benchmark that considers exogenous random demand, on average. In addition, we evaluate the performance of preventive pricing and relocation decisions under two vehicle allocation policies. The results suggest that a controlled allocation of vehicles to customers can improve service rates while only marginally affecting profits.