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Incremental discount policy for taxi fare with price-sensitive demand

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  • Kim, Young-Joo
  • Hwang, Hark

Abstract

It takes some time for taxi driver to complete a requested service of passengers and the driver can attend to only one service at a time, and this distinguishes taxi service from ordinary goods. This paper deals with an incremental discount policy on the taxi fare. It is assumed that customers arrive following a Poisson process with price-sensitive arrival rates. With the objective of maximizing the average profit of taxi, a mathematical model is developed based on regenerative process. Through an analysis of the model, we show that the incremental discount policy is beneficial to the taxi company when the customer arrival rate is relatively small. Also, we propose a solution procedure to determine the optimal discount rate and price breakpoint. Finally, test problems are solved for sensitivity studies.

Suggested Citation

  • Kim, Young-Joo & Hwang, Hark, 2008. "Incremental discount policy for taxi fare with price-sensitive demand," International Journal of Production Economics, Elsevier, vol. 112(2), pages 895-902, April.
    • Handle: RePEc:eee:proeco:v:112:y:2008:i:2:p:895-902
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    Cited by:

    1. Chang, Hung-Chi, 2013. "A note on an economic lot size model for price-dependent demand under quantity and freight discounts," International Journal of Production Economics, Elsevier, vol. 144(1), pages 175-179.
    2. Rongxiang Su & Zhixiang Fang & Ningxin Luo & Jingwei Zhu, 2018. "Understanding the Dynamics of the Pick-Up and Drop-Off Locations of Taxicabs in the Context of a Subsidy War among E-Hailing Apps," Sustainability, MDPI, vol. 10(4), pages 1-24, April.
    3. Gallo, Mariano, 2018. "Improving equity of urban transit systems with the adoption of origin-destination based taxi fares," Socio-Economic Planning Sciences, Elsevier, vol. 64(C), pages 38-55.
    4. Dali Wei & Changwei Yuan & Hongchao Liu & Dayong Wu & Wesley Kumfer, 2017. "The Impact of Service Refusal to the Supply–Demand Equilibrium in the Taxicab Market," Networks and Spatial Economics, Springer, vol. 17(1), pages 225-253, March.
    5. Yang, Jie & Zhao, Daozhi & Wang, Zeyu & Xu, Chunqiu, 2022. "Impact of regulation on on-demand ride-sharing service: Profit-based target vs demand-based target," Research in Transportation Economics, Elsevier, vol. 92(C).

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