Vehicle Redistribution in Ride-Sourcing Markets using Convex Minimum Cost Flows

TL;DR

This paper presents a convex minimum cost flow model for vehicle redistribution in ride-sourcing markets that incorporates customer choice and market structure, improving efficiency and profitability.

Contribution

It introduces a novel convex minimum cost flow formulation that accounts for customer behavior and market structure, solved via an edge splitting algorithm.

Findings

Reduces wait times by over 50%

Increases profit by up to 10%

Limits vehicle mileage increase to under 20%

Abstract

Ride-sourcing platforms often face imbalances in the demand and supply of rides across areas in their operating road-networks. As such, dynamic pricing methods have been used to mediate these demand asymmetries through surge price multipliers, thus incentivising higher driver participation in the market. However, the anticipated commercialisation of autonomous vehicles could transform the current ride-sourcing platforms to fleet operators. The absence of human drivers fosters the need for empty vehicle management to address any vehicle supply deficiencies. Proactive redistribution using integer programming and demand predictive models have been proposed in research to address this problem. A shortcoming of existing models, however, is that they ignore the market structure and underlying customer choice behaviour. As such, current models do not capture the real value of redistribution. To resolve this, we formulate the vehicle redistribution problem as a non-linear minimum cost flow problem which accounts for the relationship of supply and demand of rides, by assuming a customer discrete choice model and a market structure. We demonstrate that this model can have a convex domain, and we introduce an edge splitting algorithm to solve a transformed convex minimum cost flow problem for vehicle redistribution. By testing our model using simulation, we show that our redistribution algorithm can decrease wait times by more than 50%, increase profit up to 10% with less than 20% increase in vehicle mileage. Our findings outline that the value of redistribution is contingent on localised market structure and customer behaviour.