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Incremental discount policy for taxi fare with price-sensitive demand

Listed author(s):
  • Kim, Young-Joo
  • Hwang, Hark
Registered author(s):

    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.

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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 112 (2008)
    Issue (Month): 2 (April)
    Pages: 895-902

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    Handle: RePEc:eee:proeco:v:112:y:2008:i:2:p:895-902
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    1. Wee, Hui-Ming, 1999. "Deteriorating inventory model with quantity discount, pricing and partial backordering," International Journal of Production Economics, Elsevier, vol. 59(1-3), pages 511-518, March.
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    3. Polatoglu, Hakan & Sahin, Izzet, 2000. "Optimal procurement policies under price-dependent demand," International Journal of Production Economics, Elsevier, vol. 65(2), pages 141-171, April.
    4. S. K. Goyal, 1987. "Note---Comment on: A Generalized Quantity Discount Pricing Model to Increase Supplier's Profits," Management Science, INFORMS, vol. 33(12), pages 1635-1636, December.
    5. Abad, P. L. & Jaggi, C. K., 2003. "A joint approach for setting unit price and the length of the credit period for a seller when end demand is price sensitive," International Journal of Production Economics, Elsevier, vol. 83(2), pages 115-122, February.
    6. Robert J. Dolan, 1987. "Quantity Discounts: Managerial Issues and Research Opportunities," Marketing Science, INFORMS, vol. 6(1), pages 1-22.
    7. Hau L. Lee & Meir J. Rosenblatt, 1986. "A Generalized Quantity Discount Pricing Model to Increase Supplier's Profits," Management Science, INFORMS, vol. 32(9), pages 1177-1185, September.
    8. Burwell, Timothy H. & Dave, Dinesh S. & Fitzpatrick, Kathy E. & Roy, Melvin R., 1997. "Economic lot size model for price-dependent demand under quantity and freight discounts," International Journal of Production Economics, Elsevier, vol. 48(2), pages 141-155, January.
    9. Kim, Kap H. & Hwang, Hark, 1988. "An incremental discount pricing schedule with multiple customers and single price break," European Journal of Operational Research, Elsevier, vol. 35(1), pages 71-79, April.
    10. James P. Monahan, 1984. "A Quantity Discount Pricing Model to Increase Vendor Profits," Management Science, INFORMS, vol. 30(6), pages 720-726, June.
    11. Munson, Charles L. & Rosenblatt, Meir J. & Rosenblatt, Zehava, 1999. "The use and abuse of power in supply chains," Business Horizons, Elsevier, vol. 42(1), pages 55-65.
    12. Rubin, Paul A. & Benton, W. C., 2003. "Evaluating jointly constrained order quantity complexities for incremental discounts," European Journal of Operational Research, Elsevier, vol. 149(3), pages 557-570, September.
    13. Sarker, Bhaba R. & Al Kindi, Mahmood, 2006. "Optimal ordering policies in response to a discount offer," International Journal of Production Economics, Elsevier, vol. 100(2), pages 195-211, April.
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