Pricing Method of the Flexible Bus Service Based on Cumulative Prospect Theory

Abstract

Pricing directly affects the sustainable development of the flexible bus service. This study proposes a profit maximization model and a social welfare maximization model for the flexible bus operator based on the cumulative prospect theory. Fares and uncertain travel time due to unforeseen detours in serving passengers jointly affect passengers’ mode choice. On the other hand, fares and passengers’ probabilistic choices over the flexible bus jointly determine the profits of the flexible bus company and social welfare. This study explores the relationship between the probability of passengers choosing the flexible bus, trip fares, and uncertain travel time. Serving more passengers indicates more profits, which also results in longer detour time thus decreasing the probability of passengers choosing the flexible bus. Considering the interactive influence among passengers, we further calculate the detour time distribution. Finally, a pricing model is established to compensate for the side effects of the detour. The results show that heterogeneous fares can help the flexible bus company to obtain higher profits but have negligible influence on social welfare. In addition, the development of long-distance services and regulations over the detour time can also help to obtain more profits.