25146884

A Multiperiod Dynamic Model of Taxi Services with Endogenous Service Intensity Author(s): Hai Yang, Min Ye, Wilson
Hon-Chung Tang and Sze Chun Wong Source: Operations Research, Vol. 53, No. 3 (May - Jun., 2005), pp. 501-515 Published by: INFORMS Stable URL: http://www.jstor.org/stable/25146884 . Accessed: 09/04/2014 11:48
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Operations Research infflJuTfl.

Vol. 53, No. 3, May-June 2005, pp. 501-515 eissn 1526-5463105 ISSN0030-364XI 15303 10501 DQI 10.1287/opre.l040.0181
?2005
INFORMS
A Multiperiod Dynamic Endogenous

Department
Model of Taxi Services Service Intensity

Hai Yang
of Science and Technology,
with
of Civil Engineering, The Hong Kong University Clear Water Bay, Kowloon, Hong Kong, China,
cehyang@ust.hk
Min Ye
China Academy of Urban Design and Planning Institute, Beijing 100044, China, 0yemin@163.com
Wilson
Department
Hon-Chung
Tang
of Science wtang@ust.hk and Technology,
of Civil Engineering, The Hong Kong University Clear Water Bay, Kowloon, Hong Kong, China,
Department
of Civil Engineering,
The University
Sze Chun Wong

of Hong Kong, Hong Kong, China,
hhecwsc@hkucc.hku.hk
This
day characteristics time service and taxi time
paper service
presents period are
taxi service model with service The whole endogenous multiperiod aggregated intensity. into a number of subperiods; each taxi supply and customer demand during subperiod, as a function to be uniform. assumed Customer demand is period-specific and described of waiting a function one component cost for each work of two components: fare. Taxi operating shift consists of total
a spatially is divided
freely chooses increase their
is proposed network equilibrium nonlinear network utilization prediction industry. rate of of
the other component Each taxi driver can work for one or more shifts each day and period-dependent. cannot of taxi services is obtained the starting and ending time of each shift. Equilibrium when taxi drivers their individual A novel individual schedules. clock network by changing working representation profits as a to characterize taxi service The problem is formulated the multiperiod of interest equilibrium problem. and model flow taxis costs and arc-capacity with path-specific methods. The proposed model optimization and the level of service quality throughout of alternative government regulations on constraints, can ascertain which can be solved the at equilibrium information using service conventional and intensity is useful for the taxi
the effects
the day. The the equilibrium of demand
obtained and supply
in the urban
models, taxis/limousines; Subject classifications: transportation: Area of review: Transportation. Received December revision received 2002; History: January
networks/graphs: 2004;
applications, 2004.
flow
algorithms.
accepted
April
1. Introduction
1.1. Previous Service Static Industry availability
are an important
Analysis
of the Taxi
Largely because of their 24-hour-a-day

vision of door-to-door service, taxis
and pro
com
plement to regular scheduled services provided by other forms of public transport. Taxi services are particularly valuable to less mobile such groups in the community, as elderly and disabled people. It is important that such services are efficiently provided, meet users' needs, and are appropriately priced through government regulation. regulations are mainly concerned with two primary issues: price and entry controls. First, what restrictions? if any?should be placed on the supply of taxis? Second, what kind of control should be placed on fares? In an attempt to understand the manner in which the demand and supply are equilibrated in the presence of such reg Taxi
ulations, economists have examined these two questions
in various ways using highly aggregate models, without the spatial structure of the market and the considering time-of-day dynamic nature of taxi supply and customer demand (Douglas 1972, De vany 1975, Shrieber 1975, Abe and Brush 1976, Foerster and Gilbert 1979, Schroeter 1983, Frankena and Pautler 1986, Arnott 1996). Cairns and Liston-Heyes (1996) made an interesting extension of the conventional taxi service models by treating the service intensity of licensed taxis as an endogenous variable. They developed a simple analytical model by assuming that each taxi driver can choose the number of service hours per day, but customer demand and taxi supply are still assumed to be distributed uniformly throughout the day. In view of the fact that demand for and supply of taxi services take place over space, Yang and Wong and their colleagues have recently modeled urban taxi services in a network describe network 501 context. A realistic method has been proposed to vacant and occupied taxi movements in a road and taxi drivers' search behavior for customers
Yang
et al.: A Multiperiod
Dynamic
Model 502
Service Intensity of Taxi Services with Endogenous Operations Research 53(3), pp. 501-515, ? 2005 INFORMS
1998). A few extensions have been made (Yang and Wong taxi servipes to deal with the demand elasticity, multiclass with service area regulation, and congestion effects as well as development of efficient solution algorithms (Wong and Yang 1998; Wong et al. 2001, 2003; Yang et al. 2001, 2002, 2003). These developments have important implications for both an assessment of road traffic congestion due to taxi movements and a precise understanding of the equilibrium
nature of taxi services.
taxi owner, and the majority of taxis are cruising taxis. Taxi drivers vary the extent of service by changing their working hours and working schedules in a day. In general, taxi drivers work on a shift basis, with eight hours per shift, most of the taxis operate on two or three shifts by more than one driver every day, and the shift schedule varies across individual taxis or drivers. Although the three eight hour shifts span the whole 24-hour demand period, not all taxis operate for three shifts, and during each shift a taxi driver may not work for eight hours. Taxi drivers have to spend time for other activities, such as a meal break. Taxi service hours or service intensity are strongly governed by the market profitability. When the business is nonprofitable, the owners may simply park their taxis. Profitability of the market depends on the actual utilization of taxis in service, while taxi utilization depends on the customer demand and taxi supply; all of these variables are endogenous variables that exhibit substantial time of day variations. As an exam ple, Figure 1 depicts the profiles of the number of (empty and occupied) taxis that travel through the three Hong Kong cross-harbor tunnels over a typical 24-hour period. These profiles show the hourly taxi flow rates and highlight the morning and evening peak-hours. Period-Dependent
1.2. Hourly The
Variation
of Customer
Demand
and
Taxi Service
Intensity
as mentioned above, existing taxi service models, a over which taxi supply involve single static time period and customer demand are distributed uniformly. The real situation is that, unlike regular transit such as trains, trams, and buses, taxis are usually operated by a large number of private firms, mostly owned and operated by individuals. the taxi industry is generally subject to the regu While lation of both entry restriction and fare control, the ser intensity of a licensed taxi is generally uncontrolled (in fact, service intensity is difficult to monitor in practice). With such a market setting, individual taxi drivers or firms can freely choose their working schedule in response to market and the operating cost as well as the profitability vice opportunity cost of being in service in a day. As a result, taxi services in most exhibit a remarkable hourly variation of and taxi service intensity throughout the different times of of the large cities customer demand 24 hours of a day. a taxi In Hong Kong (Transport Department, 1986-2002), driver generally owns his own taxi or hires one from a 1.
1.3. Necessity to Model Taxi Services
The essential hourly fluctuation of customer demand and of a dynamic taxi taxi supply calls for the development service model that explicitly takes into account how the ser vice intensity of individual taxis varies with the customer demand in each subperiod, thereby helping to understand tunnels between Hong Kong Island
Figure
Hourly variations of the numbers of taxis through the three cross-harbor 1998. The Annual Traffic Census). and Kowloon (Transport Department
2,000-j-j -O? ? Cross Habour Tunnel Eastern Habour Crossing Western Habour Crossing / ^-^ / V
??r-
*-* i-i i i-1-1-1-1-1-i-1-1-1-1-1-1-1-1-1-1-1-1 i^""T" 'i' 0I i" 9 10 11 12 13 14 15 16 17 18 Hourly Period of the Day
19
20
21
22
23
24
Yang et al.: A Multiperiod Dynamic Model Operations Research 53(3), pp. 501-515, ?2005
of Taxi Services INFORMS 503
with Endogenous
Service
Intensity
precisely opment
the nature of the market equilibrium. The devel of a multiperiod taxi service model has useful in most large cities, taxi indus In application practice. tries are regulated almost everywhere, and the regulation is likely to remain a reality. A common rationale for regu
In ?3, we formulate the aggregate mul taxi service model and prove that the tiperiod dynamic model does lead to dynamic taxi service equilibrium with endogenous service intensity in a competitive market under most major cities. given entry and fare regulations. Section 4 shows how the model can be solved efficiently by an interior penalty func tion method. Section 5 provides a numerical experiment to demonstrate the characteristics gate the impacts of alternative performances. Finally, of the model and investi taxi regulations on system general conclusions are given in ?6.
lating the industry has been to make transport available at times when demand is low and in areas where population is dispersed. Hence, it is important to predict the impact of both price and entry regulations. What can be observed is the number of taxis operating, the ratio of occupied to empty (unoccupied but in service) taxis, trips made, and waiting times. These four quantities have been prominent in discussion of the trade. Indeed, in Hong Kong, annual roadside observation surveys are conducted to gather infor taxis mation regarding the percentage of occupied/vacant and the average taxi headway between vacant taxis on selected road locations (Transport Department, 1986-2002). The former index is intended to reflect the uti lization level of taxis (a higher proportion of occupied taxis would indicate a higher utilization rate of taxis), while the latter index is used as a measurement of the availability of vacant taxis (a shorter time headway between vacant taxis means a higher availability or a higher flow rate of vacant taxis), thereby reflecting the level of taxi service. Obser vation surveys on customer/taxi waiting times at operative taxi stands are also carried out as well. The results of these in surveys provide important information for government policy formulation on taxi services. For instance, the survey results are used for the evaluation of whether taxi service has been improved, the identification of whether or not the number of taxis should be increased and if so by how many, and whether or not the taxi fare should be adjusted upward or downward. All these decisions may affect the resultant service quality and taxi utilization. The average performance measures from the survey results are, however,
biased because owners
2. Network Representation, Cost, and Revenue

2.1. We Network Representation
Demand,
some major
now propose a clock-network or multiperiod dynamic method to model the hourly variation and equilibrium of customer demand and taxi service intensity throughout the day. As shown in Figure 2, we divide a typical day of
Figure
2.
The proposed clock network for equilibrium characterization of multiperiod taxi services within a whole day.
imperfect. Taxi utilization

take taxis off the street
rates are
when they
anticipate lower rates of utilization due to a lower demand. The remaining taxis then operate at utilization rates that are higher than would be otherwise the case. Taxi availability shares similar feature as well. All these characteristics point to the necessity and importance of developing a taxi ser vice model capable of analyzing the multiperiod dynamic
characteristics, thereby acquiring more useful measures of
service quality and market
profitability.
1.4. Objective of the Study

This paper makes a further extension of the earlier large number of economic studies of taxi services. The exist ing spatially aggregated single-period models (Yang et al. are a more to extended realistic taxi ser 2003) multiperiod vice situation where elements
of urban
period-dependent
In the next
demand and supply

section, we describe
characteristics
are modeled.
the essential
characteristics
required to describe
taxi services that
the multiperiod
are common to
Yang
Dynamic
Model 504
Service Intensity of Taxi Services with Endogenous INFORMS Operations Research 53(3), pp. 501-515, ?2005
taxi services into T periods of equal length, over which customer demand varies. Typically, 24 periods of an equal one-hour length is preferable {T = 24). Within each period, the taxi supply and customer demand are assumed to be and uniform, and the customer demand is period-specific time for a given fare described as a function of waiting
structure. There are three groups of arcs connecting a sin
As long as the period is reasonably long (e.g., one hour considered here), the transient number of demand is negli gible in comparison with the total demand in each period. Let N be the number of licensed taxis and vt the average number of taxis actually in service in period t. Clearly, vt^N for all f= l,2,...,7\ (3)
gle origin-destination pair. Along the clock, the number of each node corresponds to a clock time (called clock node); each time period t {t = 1,2,..., T) is represented by an arc at with start node (time) nt_x and end node (time) nt9 respectively, with one exception of arc 1, for which the start to 0 o'clock. This group of arcs node is 24 corresponding along the clock is termed as clock arcs. The second group of arcs consists of entry arcs connecting the origin node 25 and each of the clock nodes, nt {t = 1, 2,..., T), denoting the starting or entry time t of a shift of taxi services. The third group of arcs consists of exit arcs connecting each of the clock nodes, nt {t = 1, 2,..., T) and the destination node 26, denoting the ending or exit time r of a shift of taxi services. Clearly, a path flow in the network from ori gin 25 to destination 26 represents a shift of taxi services during the day. For example, a path flow along the nodes, 15 -? 26, represents a shift starting 25 -> 8 ->- 9 ->-> at 8:00 a.m. and ending at 3:00 p.m. In addition, flow on a clock arc represents the total number of taxis in service during the relevant time period. 2.2. Let Customer Demand
Given a reasonably large number of taxis, there will be no differentiation of individual taxis, the average rides per hour of each taxi in service in a given period is qt = t=\92,...,T.
^9
(4)
Given the average taxi ride time lt (h), the average number of vacant taxis, iV/\ available (in service but not occupied) at any given instant in period t is
N? = vt-ltQt, t= \929...9T. (5)
Note that Equation (5) still holds if modeling periods of a fraction of one hour are used. Furthermore, as N* ^ 0, we must have Qt < vt/lr Here a taxi in service can be
either vacant or occupied by a customer, and the vacant or
unoccupied
in service.
time here is with respect only to a taxi currently
time is negatively that customer waiting Assuming related to the number of vacant taxis available (equal to the total vacant taxi-hours as each one hour subperiod is considered);
Wt = Wt{N?)9 w; = dWJdN? < 0,

t=l,2,...,T. t=\,2,...,T (1) Furthermore, we require that Wt ?> +oo as Ntv -> 0. For (6)
be
the number of customers per unit time (one hour) taxi rides in period t over the whole service demanding area, where Ft is the expected fare or price of a taxi ride, and Wt is the expected customer waiting time for engaging a taxi during service period t. We naturally assume that
Wt) ?> 0 as Wt -> +oo. For example, one may adopt
example, the following customer waiting appropriate and adopted later:
time function
is
,ml-2.Tw,-k-îAwhere
Qt{Ft9
the following function: Qt =
period-specific
negative
exponential
demand
Qttxp{-a{Ft
+ TxWt+ T2lt)},
f=l,2,...,7\
(2)
/3 {(3> 0) is a positive parameter common to all time periods, whose value depends on the size of the service area and the distribution of taxi stands over the service area. Substitute Equation (5) into (6), and then into the demand function (1). We have = Qt{Ft9Wt) = Qt{Ft,Wt{vt-ltQt))9 r=l,2,...,r. (8)
where Qt is the potential customer demand in period t; ltis the average taxi ride time in period t9 which is assumed, on average, of a constant duration during each time period constant); rx and t2 are the values (a given period-specific of waiting time and in-vehicle time of customers, respec tively; and a {a > 0) is a demand sensitivity parameter. Note that, even though taxi and/or customer queues build ing up in period t might carry over into period t+ 1, the use of period-specific demand function or the assumption of demand independence between periods is reasonable.
Qt
When
the specific demand function (2) and customer wait time function (7) are used, Equation (8) takes the fol ing lowing specific form:
a =
(9) a?Iip{-?(i,+Tl-^-+ra//)J.
Dynamic Model Yang et al.: A Multiperiod Operations Research 53(3), pp. 501-515, ?2005
with Endogenous
Service
Intensity
For a given number of taxis vt in service and a given fare Ft and average taxi ride time lt for a period-specific taxi ride, demand is an implicit function of itself. Define HQ,) = G, Q,(Fn wt(vt ltQ,)) = 0, 0 < Q, < vt/l?
= 1,2,..., (f Ut, measured

given as
the average taxi utilization rate T). Likewise, as the fraction of occupied service time, is
Ut=1-^,
t=l,2,...,T. (10) and
f=
l,2,...,r
(15)
Note and
that <J>(<2,)is a continuous
function of Q e (0, vjl,),
= ^ ^#(<-l-0),
= l,2,...,r. r
(16)
= ^ W'> 1+/,^L^>1.o>o ^(a)sBl_?a(./r)^ ^ ?aW/ dWt^ <>dNt

because ?^
^<0, dWt
^<0.
dNt
It is self-evident that, for a given fare and a given taxi ride duration, average taxi revenue is directly proportional to taxi utilization. It is generally expected that S?1 < 1.0, which means that both the taxi utilization rate Ut and aver age taxi revenue Rt are monotonically decreasing functions of the number of taxis in service (or fleet size of taxis in this is not always true. As found in service). Nevertheless, a number of studies (De vany 1975, Manski and Wright 1976, Schroeter 1983, Arnott 1996, Wong et al. 2001), taxi utilization rate and hence average revenue increase initially with taxi fleet size.
To look at the above increasing return-to-scale phe
Furthermore, from the assumptions on the demand and cus tomer waiting time functions, we can easily verify that \im?{Qt) = -Qt{Ft9Wt{vt))<0 and
Gr-?r/'i
lim *(G,)
lt
r>0
We thus conclude that for a given taxi fare Fn taxi fleet size vt9 and average taxi ride time lt in period r, there exists one and only one equilibrium value or solution denoted as = = 1, 2,..., T for Equations (8) or (9) Q* Q*{Ft9 vn /,), t within the feasible domain {09vt/lt). Note that the negative exponential demand function (2) and the waiting time func tion (7) meet all the necessary assumptions stated above, and thus Equation (9) has a unique solution of Q* in the interval (0, vt/lt) for given Ft, vt, and lt. As expected, from Equation (8), we have
a particular period r with the = 400.0 values: and following parameter /3 (veh-h/km2) = = 0.03 = 60 Z, 0.3 (h) for Equation (7); a (1/HKD), rx = 35 = 1.0 x 105 and (HKD/h), r2 (HKD/h), Qt (trip) for are These values with ref parameter Equation (9). given erence to the calibration study carried out by Yang et al. nomenon, consider (2002). Figure 3 shows the results generated from the simu lation with the above data. The average taxi utilization and revenue do increase initially with fleet size at all three alter native taxi fares, and the increasing range varies slightly with the taxi fare charged. The reason is that as entry ini tially occurs, average customer waiting time (and hence so average cost per trip) falls more than proportionately, the customer demand increases by more than the supply of taxis. As a result, entries of new taxis into service will both increase expected utilization rate and hence revenue of taxis already in service, and decrease expected customer waiting time at the initial stage. But this intriguing result of
increasing return to scale generally corresponds to an unsta
we
= d-& M =
Q*
(11)
<0, or
G^;(,o_^)
aa = _GH1^_>0 l+ /,Gww; dv,
where 2.3. QFt = dQ,/dFt
(12) '
and Qw> = dQJdW,.
ble situation with a small fleet size and seldom emerges a realistic taxi market in equilibrium.
From dRt/dvt < the 0, above t= analysis, 1,2,..., T, hereinafter are always we assume satisfied
in
that
Average
Revenue revenue per taxi, Rt, in each
in our
Now we look at the average service period: fl, =

F,Q,
subsequent
discussions.
2.4. (13)
Cost
Structure
t=
l,2,-..,T,
-^,
?_5&(?i_lj0)_54(,f_lj(,.
(14)
Suppose that the total variable operating cost of each taxi shift consists of two components: one a function of the total number of service hours of the shift and the other additive period-dependent costs. Let ts and te be the start to a path in ing and ending time of a shift corresponding
the clock network: 25 -? nt -> -> n. -> ls le ls 26, and h\s
where is the elasticity of the customer demand e^f with respect to the total taxi-hours supplied in period r
be the corresponding
duration
(number of hours)
of the
Yang
Dynamic
Model 506
Service Intensity of Taxi Services with Endogenous INFORMS Operations Research 53(3), pp. 501-515, ?2005
Figure
3.
Variation
of the average
500-j-r
taxi revenue and average

. 450
taxi utilization with respect to taxi fleet size.

1.0 ... = Average revenue for fare 40 = 60 revenue for fare Average = Average revenue for fare 80 Utilization Utilization mmm^mm Utilization rate for fare = 40 rate for fare = 60 rate for fare = 80 g -0.7 ~
0.9
400-/^?
jr
N.
- - -
^\
"?-8 if ^v O 350-// \^ N. ? if ^\ \
^*v \
\ \ ^v -0.6 *? Fare: \v ? f \ N. HKD/tripj3 8 ^v. -0.5 5 N. 250-1 \ If
300-
<
150-
!/'
n;;--..
'?-3 ^s^ ^^-*^_
8 Number
QQ Q_J-,-,-,-,-n-,-,-,-,-\10 12 of Taxis (103 veh)
14
16
18
20
= = 24 if ts < te ^ 24 and shift: te-ts {te ts) h\\ h\\ if te < ts ^ 24. Let ct {ct ^ 0) be the period-dependent cost associated with period t {t = 1,2,..., T) and c\\ be = their sum over the shift: ^ h < *e^ 24 and c\\ Y!te=ts+\ ct = < if 24. + t* ^ Then, the total c, r, ctes ??=,5+i cr Eti shift or path cost is given as
taxi workflow. Namely, we have a uniquely aggregate defined flow-independent, but path-specific (arc nonaddi on cost the the clock network from origin 25 to the tive) destination 26.
3. Model
Now
Formulation
= c;; c0+ ^/i;;+^2(^;r
+ c;;, (17)
where c0 (c0 ^ 0) is the constant entry cost and /jlx, /jl29and y are all constant parameters. It is assumed that /jlx> 0, jjl2^0, and y > 1.0. The above specification of taxi operating cost is justified
below. c0 represents a constant entry cost that is indepen
we treat the constructed clock network in Figure 2 with a single origin-destination pair as a usual network and the normal network notation. Let Aa, Ac9 and Ae be adopt the subsets of access (entry), clock (service), and exit arcs
in the network, respectively, and let A = Aa U Ac U Ae and
dent of individual
the cost for driving
shifts. For example,

a taxi to enter or leave
it could
the
represent
area.
P be the set of paths (shifts) in the network. Given path arc flow va, aeA can be expressed as flow fp9 p eP9
service
The second and third terms represent the taxi operating cost that is monotonically increasing with the number of service hours of a shift. This assumption stems from the fact that the cost of keeping a taxi in service will surely rise rapidly as a driver works continuously for more than a certain number of hours. Such cost includes the mount cost and the gasoline consumption cost, ing maintenance as well as the imputed value of the owner's time that rises as he/she drives more hours per day, leaving less time for other uses. The last term is added to the cost function to costs that are not captured by capture the period-specific the second and third terms. This is true in reality because taxi drivers might prefer certain periods of a day to others. Everything else being equal, a driver might prefer to work in daytime rather than at midnight. Finally, we remark that with the given cost structure, the
taxi service cost
??= E/A'
PeP
a (18) A>
1 if path p uses arc a, and 0 otherwise. 8ap equals With reference to the cost structure given in Equation (17), we let each entry arc be associated with an identical, where
constant arc with entry an cost: ca = but c0, a e Aa\ and each cost: service ca = ct9 arc-specific constant service
a e Ac
2,..., T\
if arc a corresponds
and for all exit arcs, we
to service
let ca =
period
0, a Ae.
f, t =
Finally,
1,
each path is associated with a path-specific constant cost: = -> -> e P if p =: 25 -* cp ntg iLxh\ + ti2{hl)y, p -? 26, in addition to the costs of arcs constituting that ntg
path.
In a competitive market,
as competitive firms, each
all taxi drivers can be regarded

driver can work for one or more
ntg
-> 26 is a predetermined
c?
for
a given
shift
25
-*
nt$
->
->
constant
independent
of the
shifts each day and freely chooses starting and ending time of each shift. The equilibrium of taxi services is obtained
with Endogenous
Service
Intensity
taxi drivers cannot increase individual profits by alter individual working schedule (extending service time or ing service shifting periods). To derive such an equilibrium, we now consider the following mathematical programming model: when
minF(f) = ? f?{ca aeAc
/??}
da> +?
aeAa
+? c0va
peP
cpfp (19a)
Note that each path uses only one entry arc in the clock ? network. Thus, co f?r a^ P e p- Therefore, J2aeAa coâp is the total taxi operating + + HaeAc ca8ap ZaeAa "câp cp Further cost of a path (or shift) p e P, denoted as Cp. more, Y,aeAc Ra(va)8ap *sme total revenue of a path p e P9 As a result, from Equations denoted as (21a), (21b), Rp. and (22) we have fp>0 => Rp-Cp=Y,*a8ap>?
aeAc
subject to va^N9 fP>0, where aeAc9 peP, (19b) (19c) (18), and f = where
denoted
because fp = 0 => Rp-Cp^J2

aeAc
7ra^ 0
Va e Ac9
(24a)
7Ta8ap, (24b)
? Rp
here
is defined by Equation va, aeA and \ = {va9 aeA). {fp9peP) Forming the following Lagrangian: {ca-Ra(a>)}da>
Cp
as
is the net profit of a path p eP9

= Hp9 Up Rp ? Cp.
and it is
On that
the other hand, from (21c),
(21d), and (23) we find
L((,tt)=J:
va<N
= 7ra 0, 77fl^0.
(24c) (24d)
= va N =v
aeAa \peP / peP
+
where it =
I peP J Z*a\T,fp8ap-NY aeAc
(2?)
{ira9a e Ac) is a collection of the Lagrange multipliers that are associated with constraints (19b). Under the assumption introduced in ?2 that average taxi revenue decreasing function of the Ra9 a e Ac is a monotonically number of taxis in service va9 problem (19) is a convex programming problem with a convex objective function
and linear constraints. THus, from the Karush-Kuhn-Tucker
The above necessary conditions characterize (24a)-(24d) the multiperiod temporal equilibrium conditions of taxi ser vices. First, 7Tacan be interpreted as the "net profit" earned to service arc a. This net in a time period corresponding profit on service arc a can be regarded as the arc revenue minus the arc cost if we regard the arc cost as the sum cost plus the cost that the arc por of the period-specific trays for the constant entry cost and the path-specific cost. Let Ac = {a \ va = N9 a e Ac}. If taxi service in a time period is profitable {ira > 0) after taking into account all cost and the cost possible costs (including period-specific due to extended service hour), taxi drivers will choose or adjust their shift schedules so that all taxis will provide service in this profitable period, namely va = N. Consider a case in which taxi supply / in a shift p e P is pos > 0). There are two possibilities itive for this shift: {fp one is that this path or shift does not go through any arc a e Ac or period of positive net profit; namely, for any a on path p, va < N and ira ? 0, the net profit for this shift is ? = = 0-^^ = means that no addi Up Rp Cp YlaeAc ââp tional taxi driver has incentive to adjust or change his/her schedule or increase service intensity to cover or join this service shift, even though some taxis are idle throughout this shift period. The other possibility is that this path or a or some arcs e shift goes through periods of strictly Ac there exists arc a on path p positive net profit. Namely, such that va = N and 7ra > 0. Then, the net profit for this = = > ?*means that shift is Up J2aeAc â8ap RF -Cp are all licensed taxis put in service in the strictly profitable time periods and taxis working for the said shift make a positive profit. Note that there are also two possibilities for a shift with = 0. One is that path p does not contain any arc a e Ac, fp
conditions only if
(Bazaraa et al. 1993), (f, tt) is a solution
if and
(21a) /p>0^^>=0,
/,
= <>=
^?I>>0, JP
(21b)
(21c)
d-^<0=>*a=0,
= *Ê)=0 d7Ta
Differentiating
*.>(>.
(21d)
(20),
the Lagrangian
= ^?^
Jp
E
aeAc
{ca K(va)}8ap + E
aeAa
c0sap
+ cp+EÂP,
aeAc
(22)
= dJ^ d7ra
ZfPK-N.
pep
(23)
Yang
Dynamic
Model Service Intensity of Taxi Services with Endogenous 508 INFORMS Operations Research 53(3), pp. 501-515, ?2005
= the profit 0. The other pos Rp Up Cp < one or more arcs a e Ac contains is that sibility path p = and the profit and hence Rp Tlp Cp ^ Y,aeAc ira8aP> < 0 and both 0 are possible along this path ^ Ilp Up = 0 because 0. For the case with fp YâeAc 7TaSap> < 0, no taxi driver works for this shift simply and np because of an operating loss; whereas, for the case with = 0 and no taxi driver works for this shift fp np ^ 0, because taxi drivers already choose to work for other, more profitable shifts even though the current shift is and of course profitable. In summary, suppose that there are a large number of competing individual taxi drivers, each operating indepen dently of the others. Then, Equations (24a)-(24d) hold irre spective of individual taxis. No taxi drivers can increase individual profits by shifting their service periods or increasing service intensity. Therefore, we conclude the proposed clock network model (19a)-(19c) does to a multiperiod dynamic equilibrium of competitive
services.
As
parameter
p ->
0, we
have
Pt;?-N-va
* ?,
aeAc9
(27)
and the corresponding solution (f, v) will converge to the solution of the optimal original network equilibrium prob lem (19). The Lagrange multipliers ira9 a e Ac can thus be calculated using relation (27). We now consider how the Frank-Wolfe method can be used to solve problem (26) for a given penalty parameter p. The Frank-Wolfe method consists of two major steps et al. (Bazaraa 1993): finding a descent direction and imple menting a line search. Clearly,
wff.ri
vl +E
aeAa
? , , ._?_1. + Cp C08ap +E Ca8ap +S ~E C08ap RaM8ap
that lead taxi
E
aeAc
a Ac aÂa
4. Solution
The minimization
Algorithm
=
+E
aeAc
problem (19) with side constraints (19b) can be solved by an inner penalty function method in con Frank-Wolfe algorithm. The junction with the well-known method has been successfully applied to solve the capacity traffic equilibrium problem (Yang and Yagar 1994). The penalty function (Bazaraa et al. 1993) is used to transform a constrained problem into an unconstrained or partially constrained problem. In the present case, the constrained inner penalty function method is applied to incorporate the side constraints (19b) into the objective function (19a) as
a penalty term. After appropriate transformation, the aug
iV Ua -f^8ap
Cp-Rp
+ np.
(28)
Thus,
the descent direction for problem (26) can be found by solving the following linear programming (LP) problem for given current solution {f^} at iteration k:
= minZ<*>(g) ?(C<*> ~Rf

peP
+ Kpk))gp
(29a)
subject to O^gp^N, peP, (29b)
mented
objective
._,
function becomes
r ZpeP fp ?ap
H^P)=E
{ca-Ra(a>)}da>
where g = and gp < N9 p e P is added because {gp,pzP) total taxi fleet size is clearly an upper bound of the path
flow.
+pJ2
\t,?
' \peP peP
\d<?
aeAa where mization program:
p is a penalty problem
the mini parameter. Consequently, (19) is transformed into the following
minF(f, p) (26a)
subject to peP. (26b)
+ > 0. In view of its special structure, all paths #f nf) of the clock network can be simply enumerated (in total, a fixed number of paths 24 x 24 = 576 is considered by ignoring the shifts of more than 24 hours), and thus the can set of paths with negative value of + (Cf Rf nf) be easily identified at the current solution (vf ,<z e Ac). Figure 4 formally describes the algorithm for path identifi cation and LP solution for this purpose. In application of the Frank-Wolfe algorithm for solving the range of the one problem (26), we have to modify
dimensional search to ensure that none of the side con
= gp N if (Cf
Finding the optimal solution of problem (29) requires assignment of the taxi supply N to the path p for which ? is negative, and 0 otherwise. Namely, + (Cf i?f nf)-
RM +
nf)
< 0 and gp= 0 if (Cf
fP>0,
straints is violated. The algorithm
for solving problem
(26)
with Endogenous
Service
Intensity
Figure
4.
for solving Algorithm LP finding problem.

decent-direction-finding a e {1,2,..., 24} do
the decent-direction
Figure
5.
The Frank-Wolfe rithm for solving equilibrium
convex combination algo the multiperiod taxi service
problem.
Algorithm For every
Algorithm input gj, s2:
Frank-Wolfe
Method
begin
rik)<-Ra{v(ak))
^k)^p/{N-v^)
end for ts = 1 to 24 do cr (0 < a < initialization: 1 to 24 & = te 1 to ts 1 do
p?:
tolerance convergence predetermined initial value of penalty factor
parameter 1): penalty-updating constant path costs: Calculate
begin
for te = ts+
c?
begin
while <ae.Ac where
aeAc aeAc and choose a feasible interior point: ^ ?2, do
cA? + EVv
+ c?,p e/>;
|</>(v<"?,p<"))/F(vW,p("))| begin
p =: ?- 0
25 ->
nt ->-
nr -> 26 while
If (Cp -*?> + nf)

Otherwise end end return g gp
< 0 then gp <-N.
...
I EP?>(02
begin call Algorithm
{ ?-?prr?^?
fE^r'-w*^
H ^ e,, do
to obtain decent-direction-finding A* <- argmin F(hw + A(g - h(/c)), p(n)), oaamax where = Amax min 11, l min I (k) aeA,ZpePSpsap<Epephp &ap N-HP,phfdap 1
{gp,p
e P]
is described in Figure 5. In the algorithm, </>(f(n),p(n)) is the penalty term in the objective function (25) given by
^-)>pW)
= p(.)2^^{_l_j</fll.
(30)
^)
=
*<-*-|-l
^) + A*(^-/z^),/7eP
The algorithm is judged to have converged if the penalty term is sufficiently small compared to the augmented objec
tive function value. return
end = ttn) hpk+l\peP <_ a . p(n+l) p{n) n <- n+ 1 end (/p(n+1),p(n+1))
5. Numerical
5.1.
Here
Experiments
Setting
a numerical experiment with our pro
Experiment
we provide or
posed model
intensity
and algorithm
working schedule
and show how the taxi service

is determined, and how the
restriction of entry and fare affects the market profitabil ity and dynamic equilibrium of taxi supply and customer demand. Here we utilize the demand function specified in Equation function in (2) and the customer waiting Equation (7) together with the same values of parameters = = 0.03 given in ?2.3: j3 400.0 (veh-h/km2), a (1/HKD), = 60 = and t2 35 (HKD/h). For simplic rx (HKD/h), = 0.3 = ity, we assume that lt (h) for all time periods t T. In line with the observed hourly variation in 1,2,..., the pattern of taxi traffic reported by the Transport Depart we simply suppose that the potential ment (1986-2002),
customer demands Qt,t? \,2,... ,T exhibit a similar tem
We note that solving problem (19) requires evaluation of the objective function (19a), which needs a numerical inte gration of the first term. This numerical integration, in turn, requires the value of the average taxi revenue and thus the realized customer demand Qt in Equation (13) for given vt and Ft. As Equation (9) associated with the demand func tion (2) and the customer waiting time function (7) does not
entail a closed-form solution, we have to resort to a numer
ical method (bisection method is used in our calculation) to find a unique solution Q* for given vt and Fr Table Time 1. Period-specific
Potential
customer potential
Potential
demands.
Potential
demand
Time
demand
Time
demand
period
(trips)
1 43,500 2 34,800 3 29,000 4 29,000 5 29,000 6 34,800 7 69,600 8 95,700
period
9 10 11 12 13 14 15 16
(trips)
98,600 89,900 81,200 81,200 81,200 82,650 82,650 82,650
period
17 18 19 20 21 22 23 24
(trips)
81,200 81,200 82,650 69,600 66,700 58,000 58,000 58,000
poral characteristic and take the hourly value depicted in Table 1. As to the cost function given by Equation (17), we assume that c0 = 5.0 (HKD), fix = 20.0 (HKD/h), = 3, and = 0.10 7 p,2 (HKD/h3), respectively. The addi tional period-specific opportunity costs ct are presented in Table 2.
Yang
Dynamic
Model Service Intensity of Taxi Services with Endogenous 510 Operations Research 53(3), pp. 501-515, ? 2005 INFORMS
Table
2.
The additional period-specific of taxi services ct (HKD).

ct Time ct
opportunity
cost
Time
Time
ct
period
(HKD)
1 10.0 2 15.0 15.0 3 4 15.0 15.0 5 10.0 6 5.0 7 5.0 8
period
9 10 11 12 13 14 15 16
(HKD)
0.0 0.0 0.0 0.0 5.0 0.0 0.0 0.0
period
17 18 19 20 21 22 23 24
(HKD)
0.0 0.0 0.0 0.0 0.0 5.0 5.0 5.0
5.2. We
Results
and Discussion
first briefly look at the convergence of the solution algorithm. Table 3 shows the changes in the values of the penalty term given by Equation (30) and the objective function (19a) with decreasing value of the penalty factor = 1.0 x 104 = 50 p in the case: AT (veh), F (HKD/trip)
for all periods, sx = 5.0 x 10~5 and cr = 0.5. We can
observe that the objective function value almost stabilizes after four outer iterations, and the value of the penalty term declines and becomes sufficiently small in comparison with the absolute value of the objective function. Figure 6 shows the relationship between the taxi arc workflows and the corresponding Lagrange multipliers (an indicator of arc net profit) at the converged solution for the above case. When the arc flows tend to approach the fleet size (total number of licensed taxis), the Lagrange multipli ers will converge to certain positive values (from 7:00 a.m. to 24:00 p.m.). This implies that all licensed taxis are in service positive
7:00 a.m.
Figure 7 displays the net profit (revenue minus cost) associated with the shift duration starting at different times of the day. If there are entries at a given hour, a taxi driver who enters the market at that time will exit the market at the time corresponding to the maximum shift profit curve. can seen It be that the early morning working shifts are earn more generally longer and profit than the middle night working shifts. Now we look at the central results of the total net profits and the social welfares resulting from the various combina tions of taxi fleet size (N) (number of licensed taxis) and daily uniform taxi fare {F)9 which are of primary concern in taxi service regulation. Note that the path cost incurred in each individual working shift is the short-run variable cost, based on which individual taxi drivers choose service inten sity and working schedule. Here we have to add a constant long-run fixed cost of holding a taxi. This cost includes the capital cost (depreciation) of purchasing the taxi vehi cle and the cost for taxi parking facility, and so on. After appropriate transformation, a daily taxi holding cost of 250 (HKD/day) is assumed in our calculation. Inclusion of this long-run fixed cost will aid precise understanding of the long-run equilibrium taxi supply (entry to the indus try) in a completely competitive market with free entry, and the price (or the medallion value) of a taxi licence in a competitive market with binding entry restriction. Here the medallion value or license price of a taxi should be as outcome of the industry profitability rather the regarded than as part of the taxi holding cost. With holding cost included, the social welfare this long-run taxi is defined as taxi revenue
in the market profits. Note

to 24:00 p.m.
during the time periods of strictly that here all taxis in service from
does not mean that individual work
social welfare = total consumer surplus+total ? total taxi operating cost ? total taxi holding cost. Calculation of consumer surplus is given
ing shifts extend over the whole duration; it can comprise more than one shift operated by two or more taxi drivers. When the number of taxis in service is less than the fleet size, the corresponding Lagrange multiplier nearly equals zero. This implies that the incentive for additional taxis or drivers to offer service disappears in the time periods of nil profits. Table 3. The convergence of the Frank-Wolfe combination algorithm. Value of
penalty factor
in Yang
et al.
(2003).
Figures 8 and 9 portray the principal operational charac teristics of the taxi market in a fleet {N) - fait {F) space. The incremental intervals used for generating the graphs are 10 (HKD) for taxi fare and 103 (veh) for taxi fleet size. Note that here fleet size refers to the number of licensed
taxis rather than the number of taxis in service. The var
ious combinations convex

to various social
of fleet
welfares,
size and fare would

taxi profits, customer
give
rise
demands,
Number of
iteration
Value of
penalty term
Value of
objective function
and customer waiting times (averaged over all time peri ods). These are represented by iso-social welfare, iso-profit,
iso-demand, and iso-waiting time contours, respectively.
1 1,000.0 500.0 2
250.0 3 125.0 4 62.5 5 31.3 6 15.6 7 7.8 8 3.9 9
116,188.2 62,921.7
34,241.9 18,956.1 9,948.4 5,322.4 2,900.7 1,493.9 784.3
-7,948,190 -7,965,850
-7,978,010 -7,980,910 -7,981,763 -7,982,051 -7,982,314 -7,982,841 -7,982,903
A number of representative solutions with and without fare and/or entry controls in a competitive market can be iden tified and discussed from the figures. The dynamic oper service intensity ational diagrams here with endogenous those obtained from the static models resemble generally and a detailed similar discussion can be carried out as in Yang et al. (2002). In the following, we merely highlight some key points of interest and the major differences in the diagrams between the dynamic and static models.
Dynamic Model Yang et al.: A Multiperiod of Taxi Services Operations Research 53(3), pp. 501-515, ? 2005 INFORMS 511
with Endogenous
Service
Intensity
Figure
6.
The relationship between fare = 50 HKD/trip).

80-i-rl2
arc flow and its corresponding
Lagrange multiplier
(taxi fleet size =1.0 x 104 veh,
M 70
Lagrange Multiplier
^+?
Arc Flow
60-1
If
*?
I?
<? V \
6 I / /
1 2
5 6
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hourly Period of the Day
Figure
7.
The net profit associated with entry time and shift duration (taxi fleet size =1.0 x 104 veh, fare = 50 HKD/trip).
24 .. .. ..' -. , ,.. | *'**^^^^*~L7L^LTTLmLW5!!L^^^L^L^Zl^^^^*^^^mm^mm^*mi^ ,
ll^V \\
"" ? ^ \l Ma^^ShiftProfit
/^^*X
10
12
14
(o'clock) :
16
1ft
'^ .'
tt
f
-iv*
^%#
Entry Time
Yang
Dynamic
Model Service Intensity of Taxi Services with Endogenous 512 Operations Research 53(3), pp. 501-515, ? 2005 INFORMS
Figure
8.
The
iso-profit and iso-surplus
contours
in a fleet (TV)-fare (F) two-dimensional
space.
II
Profit HKD) (106 Welfare I I X/ \-Social HKD) (106
xl
^^ ^ fc 8
m
.is g \
F
is 8 \,
hi
*
120
y-050
^V^
\^
Competitive Solution I
y^-flfe
/ -f
2 ' ^^^--fso^\\Hr\-f "^XXXrV
Competitive Solutionwith-^^j-oo* ^J^v ""^ MinimumWaiting Time "^ôo^T^->^
80 I I
? /Y/^3' ""^^
I V\
Maximum Profit Solution ^-^^^
/A
^^^^^^^^^^^
0 4
Quasi-Second Best Solution SE Quasi-FirstBest Solution "^

8 Taxi Fleet Size 12 (103 veh) 16 20
The competitive equilibrium solution is governed by the break-even condi tion and indicated by the bold zero-profit contour in the figures. In a fully unregulated competitive market, if the initial supply of taxis is within the interior of the zero-profit curve, then there will be positive profits in the industry. Supply will be expanded toward zero-profit contours until the attractiveness of this action disappears?that is, until profits become zero. No service will be offered outside the there is no compelling evidence zero-profit contour. While that any combination of fare and fleet solution values in the zero-profit curve will occur (in particular, the competitive zero-profit solutions at small taxi fleet sizes are unstable, as mentioned in ?2.3, where the assumption of demand elas in total taxi-hours less than one is not satisfied), it is ticity conceivable that the most probable long-run stable competi tive equilibrium occurs at point E9 at which the competitive
As seen from Figure 8, the zero-profit curve within which profit is positive.
curve is a closed
and the incentive for all individual fleet size is maximized, firms to change fare and/or for new taxi firms to enter the market disappears (refer to Yang et al. 2002 for a detailed indicates explanation in the static case). This observation a market will that eventually operate at point competitive E if the market is fully deregulated.
The positive profit domain can be realized in a competi tive market with binding entry limit (and/or fare controlled at appropriate level). In the case with entry limit, the market becomes protected and thus operates in the positive profit region at the given entry limit. The fare, if not fixed, could probably take any value in between the lowest and the high est zero-profit fares at the given entry limit, but it tends to self-adjust upward or downward and eventually stays at the average profit-maximizing point at the entry limit. When ever the industry is operating in the positive profit domain due to active entry limit, the competitive firms will earn supernormal profits. As a result, a positive taxi license price or a positive medallion market value will arise. In a partially regulated competitive market where only the regulator sets fare, the solution of taxi fleet size is unique and given by the right-hand-side point located at to the regulated fare the zero-profit curve corresponding at side of the zero small taxi size the fleet left-hand (the curve as in ?2.3). Thus, is mentioned unstable, profit the point at which the market would operate depends on the fare set by the regulator. Here the social welfare maximizing point B on the zero-profit curve is partic This welfare-maximizing ularly worth mentioning. point
is referred to as the social gives a maximum "quasi-second-best welfare along solution," the zero-profit which curve
with Endogenous
Service
Intensity
Figure
9.
The
iso-demand
and iso-waiting
time contours / ///// /
in a fleet (N)-fare , -
{F) two-dimensional ConsumerDemand (trip)
space.
<&' */ /
Time(h) ^-Waiting
16?/
/ / /
//V
- ""*"
- ^
""^
?*
/^^St
Competitive
Solution_
_0.06?^^^.
* 80" /
?sV
K I >^ I\ \/
>C^^ \ ^V\\
/ \
\^s^*^
^Â \^-^"^sT\?1
Competitive Solutionwith _? MinimumWaiting Time f4'000
\\ 1
? '-?
^??
/\ 3 \
jr v x
^^N
A StableCompetitive Solution""
^^<T^^^^ ( \ /
/
?-*Â^-3e?-V"?10,00? s^*?16,000? N
[A v.
Vi-s
^ Maximum Profit Solution,
* ^--^--^-i
\^/f
J*\
S*^^
.,
.
0
\\J
4
yx
Quasi-SecondBest Solution I
8 Taxi Fleet Size 12 (103 veh)
Quasi-FirstBest Solution
16 20
(as seen in Figure 8). Here we use the term "quasi-second

best" because the maximum welfare under the break-even
constraint
is achieved
service endogenous service intensity and working schedule selected by indi in a com vidual taxi drivers for self-profit-maximization
petitive equilibrium are not necessarily consistent with
regulating taxi fare, but with schedule. The intensity and working by
the
because the reduction in waiting time is insufficient to off set the higher fare for every customer. The extent of this trade-off depends on the value of time of customers. There fore, efficient fare regulation would require that fare be set at point B so that a feasible quasi-second-best solution is realized. It is noteworthy from the diagram that this quasi second-best solution can be attained only by fixing fare;
optimal taxi entry will come about as a result of fare regu
socially
attainment
optimal
of the
ones. Thus,
"second-best"
in addition
solution
to fare control,
regulation
requires
of service
intensity and schedule of licensed taxis the time-varying customer demand is served with optimal service intensity and working schedule. Of in reality, it is extremely difficult, if not impossible, ulate working schedule of licensed taxis. We point out that the quasi-second-best
to a maximum realized customer demand,
so that socially course, to reg
point also leads

as confirmed in
Figure 9. This means

demand are maximized
that the social welfare

simultaneously under
and customer
zero-profit
constraint
in this case. As
the fare is lowered below
the
quasi-second-best point B, the equilibrium utilization ratio that the number of vacant taxis falls and the rises, implying thus taxi demand declines because the waiting time rises, more increased waiting time than nullifies the advantage customer. of the lower fare for every Similarly, as the fare is raised above point B, customer demand also declines,
lation. This optimal regulation would produce a medallion value of zero. Finally, we point out that while the maxi mum fleet size point E on the zero-profit curve is a long-run stable equilibrium point in a fully unregulated competitive market, this point is inefficient from the society point of view because the maximum offered quantity of taxi-hours of service is not utilized efficiently. This results in an inten sive, but wasteful, competition among taxi firms. Figures 8 and 9 also locate the quasi-first-best solution of social optimum (for the same reason mentioned above, the term "quasi-first-best" is used). From the point of view of the economy as a whole, the efficient allocation would be to choose a fleet-fare combination to maximize total social welfare. Like the static taxi operation model, it is found that the quasi-first-best social optimum is located at the right
side ing of the zero-profit taxi contour. at The a loss. quasi-first-best Therefore, taxi pric entails operation attainment
of the quasi-first-best
solution would
require
introduction
Yang
Dynamic
Service Intensity Model of Taxi Services with Endogenous 514 Operations Research 53(3), pp. 501-515, ? 2005 INFORMS
of a mechanism that subsidizes taxi service to cover the operational deficit. We now turn to the average customer waiting times (plot ted in Figure 9), which are regarded as a proxy of service of service quality. It can be seen that the maximization quality (minimum average customer waiting time) occurs at point H on the zero-profit curve, with a somewhat higher fare than at point E. This service quality-maximizing point certainly gives rise to a very low taxi utilization. Note that the pattern of iso-waiting time contours is quite different from that in the static taxi service model (Yang et al. 2002).
In the present dynamic model, the average customer wait
Figure
10.
Scale effect of potential customer demand on optimal taxi fare and fleet size.
-r -*- Taxi fleet size formaximum social welfare ~?" Taxi fleet size for maximum profit -*- Fare for maximum social welfare " - - Fare for maximum 80 profit ? 14^-*-* 100 -90
20-118 16
-70
2
^
12/
^y^ I
r60
? 10-
S
/ I -7^
*^
^^-"-ii-
ing time tends to be nearly constant (contour locus becomes approximately horizontal) because taxi fleet size is large, whereas in the static taxi model customer waiting time at a given fare is always declining with taxi fleet size (although with a decreasing change rate). This phenomenon arises from the different assumptions embodied in these two types of models. The single-period static model assumes that all licensed taxis are in service, and thus adding new taxis will always lead to an increase in vacant taxi-hours and
thus a decrease in customer waiting time. In contrast, the
i 8*' /
h 61
4wn*
"5
Js
\w
s H
â-^-"***-n-n
?*-*-*-*-4
/ ^^^
+ m**ik
r30
h-20
2
0.0
1/
0.2 0.4 0.6 0.8
0-1-,-,-,-,-,-,-,-,-,-,-|-o 1.2 1.4 1.6 1.0 Scaling Factor
1.8
2.0
2.2
dynamic model supposes that all taxi drivers multiperiod the time-of-day use of individual taxis for service optimize in response to the market temporal conditions. It is self evident from our clock network model that, as taxi fleet size increases and reaches a certain level, the net profit for all paths or shifts with positive taxi workflow will even tually become zero. Any increase in taxi service intensity or increase in the number of licensed taxis beyond this limit level will merely suffer further losses. This means that with increase in the number of licensed taxis, taxi drivers will simply park their cars instead of offering unprofitable service. As in licensed
service quality.
one. The gap is generally larger than the profit-maximizing between the two fleet sizes enlarges quickly as the demand scaling factor increases, and keeps constant as the scaling
factor exceeds a certain limit.
6. Conclusions
This paper extended the conventional aggregate taxi service models for a single uniform period to amultiperiod dynamic situation. Our extension explicitly incorporates the time-of day variations of customer demand into a taxi modeling framework with endogenous service intensity. Our proposed model thus added substantial new realism to the work to date by a large number of economists by considering the is especially time dimension of services. The extension for precise understanding of the operational meaningful
characteristics of a realistic taxi industry. Indeed, our numer
a result, at large fleet size, further increase taxis does not lead to much improvement in
Finally, we look at the sensitivity of the social-welfare fares and taxi fleet and profit-maximizing maximizing sizes with respect to the period-specific potential customer same demands. Keeping the temporal change pattern, we down the customer potential scale scale up and uniformly demands presented in Table 1. For given scaled potential
customer demands, we use the Hooke-Jeeves pattern search
method (Bazaraa et al. 1993) to find the optimal taxi fare and fleet size for maximizing profit and social welfare, 10 respectively. Figure displays the change of the optimal factor. As fares and fleet sizes with the demand-scaling observed from this figure, the optimal fare for social wel fare maximization keeps quite stable around 20 (HKD/trip), increases the optimal fare for profit maximization while with increasing potential demand and eventually tends to stabilize at extremely high demand. On the other hand, both fleet and the welfare-maximizing the profit-maximizing factor increases, sizes grow quickly as the demand-scaling and then tend to be constant as the scaling factor goes fleet size beyond a certain limit. The welfare-maximizing
ical experiments offered some interesting insights into the temporal nature of the taxi industry equilibrium. The aggregate multiperiod dynamic model can be fur ther extended in at least two directions. First, the aggregate net dynamic model can be integrated with the multiclass work taxi model for service area regulation developed by Wong et al. (2003). In this case, each service area is asso a clock network, and the spatially aggregated demand-supply model on each clock arc of a clock net work is replaced by the spatial taxi model on the physical road network in a particular service area. Such integration of service qual will help acquire more useful measures at demand is high times when and market ity profitability or low and at locations where the population is concen trated or dispersed, as well as congestion effects due to ciated with The time and both occupied and vacant taxi movements. location information of services is useful for regulating temporal and spatial fare differentiation. Second, the clock
Dynamic Model Yang et al.: A Multiperiod of Taxi Services Operations Research 53(3), pp. 501-515, ? 2005 INFORMS 515
with Endogenous
Service
Intensity
network equilibrium model can be applied to determine an optimal temporal fare structure using a bi-level program ming approach (Yang and Bell 2001), where the upper level problem is to ascertain period-specific fares to maxi
mize social welfare or attain a quasi-second-best optimum,
Douglas, G. W. 1972. Price regulation and optimal taxicab industry. J. Transport Econom. Policy Foerster,
service 20
standards: The
116-127.
ser and the lower-level problem would be the multiperiod vice equilibrium problem on the clock network. Finally, we remark that the clock network equilibrium model is gener ally applicable for modeling time-of-day utilization of gen eral public service facilities such as public library, public swimming pool, ski slopes, and public parking facilities. These facilities can be shared subject to congestion.
conse J. F., G. Gilbert. Economic 1979. Taxicab deregulation: and regulatory choices. Transportation 8 371-387. P. A. Pautler. 1986. Taxicab Frankena, M. W, regulation: An economic 9 129-165. analysis. Res. Law Econom. quences
in the market C. R, J. D. Wright. 1976. Nature of equilibrium Manski, Res. Record 619 296-306. for taxi services. Transportation Schroeter, fleet J. R. 1983. A model of taxi service under fare structure and size regulation. Bell J. Econom. 14 81-96. of
reasons for price and entry regulation Shrieber, C. 1975. The economic taxicabs. J. Transport Econom. Policy 9 268-293. The level of taxi services. TTSD 1986-2002. Transport Department. lication series, Hong Kong Government, Hong Kong, SAR. 1998. The annual Transport Department. Government, Hong Kong, SAR. traffic census?1998.
Pub
Hong Kong taxi services Res.
Acknowledgments
The
Alberta,
authors
an
thank Robin
anonymous
Lindsey
of
editor,
the University
and two anony
of
Wong,
associate
mous
referees for their helpful comments on an earlier version of this paper. This study was supported by a research grant from the Research Grants Council of the Hong Kong Special Administrative Region (Project No.
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A Multiperiod Dynamic Model of Taxi Services with Endogenous Service Intensity Author(s): Hai Yang, Min Ye, Wilson

Operations Research infflJuTfl.

A Multiperiod Dynamic Endogenous

Model of Taxi Services Service Intensity

Sze Chun Wong

day characteristics time service and taxi time

presents period are

freely chooses increase their

is proposed network equilibrium nonlinear network utilization prediction industry. rate of of

the day. The the equilibrium of demand

obtained and supply

Largely because of their 24-hour-a-day

1.2. Hourly The

1.3. Necessity to Model Taxi Services

of Taxi Services INFORMS 503

2. Network Representation, Cost, and Revenue

imperfect. Taxi utilization

service quality and market

1.4. Objective of the Study

demand and supply

time here is with respect only to a taxi currently

Wt = Wt{N?)9 w; = dWJdN? < 0,

example, the following customer waiting appropriate and adopted later:

the following function: Qt =

of Taxi Services INFORMS 505

= 1,2,..., (f Ut, measured

that <J>(<2,)is a continuous

function of Q e (0, vjl,),

= ^ W'> 1+/,^L^>1.o>o ^(a)sBl_?a(./r)^ ^ ?aW/ dWt^ <>dNt

Revenue revenue per taxi, Rt, in each

Now we look at the average service period: fl, =

taxi revenue and average

taxi utilization with respect to taxi fleet size.

\ \ ^v -0.6 *? Fare: \v ? f \ N. HKD/tripj3 8 ^v. -0.5 5 N. 250-1 \ If

'?-3 ^s^ ^^-*^_

QQ Q_J-,-,-,-,-n-,-,-,-,-\10 12 of Taxis (103 veh)

= c;; c0+ ^/i;;+^2(^;r

shifts. For example,

all taxi drivers can be regarded

of Taxi Services INFORMS 507

minF(f) = ? f?{ca aeAc

because fp = 0 => Rp-Cp^J2

is the net profit of a path p eP9

the other hand, from (21c),

(21d), and (23) we find

I peP J Z*a\T,fp8ap-NY aeAc

(Bazaraa et al. 1993), (f, tt) is a solution

? , , ._?_1. + Cp C08ap +E Ca8ap +S ~E C08ap RaM8ap

that lead taxi

= minZ<*>(g) ?(C<*> ~Rf

subject to O^gp^N, peP, (29b)

aeAa where mization program:

the mini parameter. Consequently, (19) is transformed into the following

< 0 and gp= 0 if (Cf

straints is violated. The algorithm

for solving problem

of Taxi Services INFORMS 509

for solving Algorithm LP finding problem.

The Frank-Wolfe rithm for solving equilibrium

convex combination algo the multiperiod taxi service

Algorithm For every

Algorithm input gj, s2:

tolerance convergence predetermined initial value of penalty factor

parameter 1): penalty-updating constant path costs: Calculate

= minZ<>(g) ?(C<> ~Rf