Service Network Design with Tiered Pricing under Static Competition

This research develops a single-level Mixed Integer Nonlinear Programming (MINLP) model for service network design and tiered pricing under conditions of static competition in the freight transportation market. The study's methodology focuses on the simultaneous integration of three key decisions: transport route selection, service frequency determination, and pricing for the new entrant company. To realistically model customer behavior, a multi-stage pricing mechanism was designed, which discretely allocates market share at each stage based on the ratio of the new entrant's price to the competitor's price. To implement the model, the competitor's routes, prices, and frequencies were first extracted by solving a service network design model with a profit maximization objective; these data were then used as inputs in the main model for the new entrant. The numerical study was conducted on a network with ۲۹ nodes in Iran's road and rail transportation system for ۱۰ types of freight, and the model was solved using GAMS software with the BARON solver. The results indicate that the new entrant company can capture ۵۳% of the market share. Sensitivity analysis further reveals that the model's outcomes are most sensitive to changes in the competitor's price; the five-tier pricing structure yields the best performance; and adjustments to the bounds of the pricing tiers have a significant impact on both profit and market share.

Keywords:

Service Network Design , Static Competition , Tiered pricing