Market mechanism design for profitable on-demand transport services

On-demand transport services in the form of dial-a-ride and taxis are crucial parts of the transport infrastructure in all major cities. However, not all on-demand transport services are equal: not-for-profit dial-a-ride services with coordinated drivers significantly differ from profit-motivated taxi services with uncoordinated drivers. In fact, there are two key threads of work on efficient scheduling, routing, and pricing for passengers: dial-a-ride services; and taxi services. Unfortunately, there has been only limited development of algorithms for joint optimization of scheduling, routing, and pricing; largely due to the widespread assumption of fixed pricing. In this paper, we introduce another thread: profit motivated on-demand transport services with coordinated drivers. To maximize provider profits and the efficiency of the service, we propose a new market mechanism for this new thread of on-demand transport services, where passengers negotiate with the service provider. In contrast to previous work, our mechanism jointly optimizes scheduling, routing, and pricing. Ultimately, we demonstrate that our approach can lead to higher profits and reduced passenger prices, compared with standard fixed price approaches, while also improving efficiency. (C) 2016 Elsevier Ltd. All rights reserved.