Platform-Based Collaborative Routing using Dynamic Prices as Incentives

Abstract

Over the last decade, platforms have emerged in numerous industries and often transformed them, posing new challenges for transportation research. Platform providers such as Uber, Uber Freight, Blackbuck, or Lyft mostly do not have immediate control over the physical resources needed to move people or goods. They often operate in a multi-sided market setting, where it is crucial to design clear incentives to motivate a third party to engage in collaboration. As a consequence, collaboration incentives become an integral part of decision support models for platform providers and they need to be developed at the operational level and applied dynamically. Naturally, this involves a trade-off between the interests of platform providers, shippers, and carriers. In this work, we investigate the real-world case of a platform provider operating as an intermediary between shippers and carriers in a less-than-truckload (LTL) business. We propose a new mixed-integer programming (MIP) formulation for the underlying collaborative pickup and delivery problem with time windows (PDPTW) that minimizes the price the platform pays to the carriers and enforces collaboration incentives for carriers through individual rationality constraints. This is facilitated by a dynamic pricing approach which ensures that carriers are better off collaborating than working on their own. The pricing is bounded by the costs and market conditions to keep the price range reasonable. We explore possible policies to be implemented by the platform and find that their business remains profitable when individual rationality is enforced and the platform could even guarantee increased profit margins to the carriers as incentives.