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Optimization and analysis of three-part tariff pricing strategies

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Abstract

Service providers usually offer different pricing schemes to consumers, which can simultaneously influence consumers’ tariff choices and their usage of the service and thus greatly affect the profits of the service providers or the utilization of the service system. However, little is known about the optimal design and management of three-part tariff pricing schemes because the models are generally not analytically tractable since the arbitrary population of heterogeneous consumers can yield an extremely complex profit function with multiple local optima. This study investigates how to design three-part tariffs, which are pricing plans that are widely used in transportation or telecommunications industries, by formulating a mixed-integer nonlinear programming optimization model. In particular, numerical analyses using GAMS/BARON and metaheuristic approaches including genetic algorithm, particle swarm optimization algorithm, and sine cosine algorithm were conducted to derive the optimal three-part tariffs under specific conditions and to compare several common tariff structures (e.g., the menus of the three-part tariff, single three-part tariff, two-part tariff, and flat rate). This study successfully identified key factors affecting the performance of the different pricing structures. Guidelines for determining the best timing of the use of different pricing structures were also derived.

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The datasets generated and/or analyzed during the current study are available from the corresponding author.

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Acknowledgements

This study was partially supported by the Ministry of Science and Technology of Taiwan under the Grant Numbers MOST 106-2410-H-011-004-MY3 and MOST 109-2410-H-011-014. Any opinions, findings, and conclusions or recommendations expressed herein are those of the authors and do not necessarily reflect the views of the sponsors.

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Authors and Affiliations

  1. Department of Industrial Management, National Taiwan University of Science and Technology, No. 43, Sec. 4, Keelung Rd., Taipei City, 106335, Taiwan

    Shi-Woei Lin, Silvia Merdikawati, Shan-Fei Wu & Ruey-Huei Yeh

  2. Artificial Intelligence for Operations Management Research Center, National Taiwan University of Science and Technology, Taipei City, 106335, Taiwan

    Shi-Woei Lin

  3. Department of Industrial Engineering, Institut Teknologi Indonesia, Tangerang Selatan, Banten, Indonesia

    Silvia Merdikawati

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  1. Shi-Woei Lin
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Lin, SW., Merdikawati, S., Wu, SF. et al. Optimization and analysis of three-part tariff pricing strategies. OR Spectrum 45, 1223–1262 (2023). https://doi.org/10.1007/s00291-023-00730-2

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