Optimizing pricing and packing of variable-sized cargo

Abstract

Abstract Organizations have successfully used dynamic pricing to optimize revenues for many years, where research and practice have mainly focused on applications with independent, discrete commodities; for example, an airline ticket. In this research we consider applications where the commodity is continuous and the value of the commodity available to sell depends on the combination of previously accepted demand. We focus on vehicle ferries, where the accepted vehicle bookings are packed in lanes in the ferry to leave a usable space for future bookings. Certain combinations of vehicles may result in areas of unusable space, which will affect future revenue. While this application is the focus of the paper, there are numerous industries that face similar challenges including freight and the sale of advertising on television and radio. In this paper, we simultaneously solve the pricing and resource utilization problem to optimality for a discrete set of product types and stochastic demand. Our approach combines a dynamic pricing model with a mixed-integer linear program to optimize the packing. We present results for real-world examples from the ferry industry and discuss extensions to the method to improve the selection of vehicle configurations.