An overview of Stackelberg pricing in networks

The Stackelberg pricing problem has two levels of decision making: tariff setting by an operator, and then selection of the cheapest alternative by customers. In the network version, an operator determines tariffs on a subset of the arcs that he owns. Customers, who wish to connect two vertices with a path of a certain capacity, select the cheapest path. The revenue for the operator is determined by the tariff and the amount of usage of his arcs. The most natural model for the problem is a (bi-linear) bilevel program, where the upper level problem is the pricing problem of the operator, and the lower level problem is a shortest path problem for each of the customers. This manuscript contains a compilation of theoretical and algorithmic results on the Stackelberg pricing problem. The description of the theory and algorithms is generally informal and intuitive. We redefine the underlying network of the problem, to obtain a compact representation. Then, we describe a basic branch-and-bound enumeration procedure. Both concepts are used for complexity issues and the development of algorithms: establishing NP-hardness, approximability, and polynomially solvable cases, and an efficient exact branch-and-bound algorithm.mathematical applications;

An overview of Stackelberg pricing in networks

The Stackelberg pricing problem has two levels of decision making: tariff setting by an operator, and then selection of the cheapest alternative by customers. In the network version, an operator determines tariffs on a subset of the arcs that he owns. Customers, who wish to connect two vertices with a path of a certain capacity, select the cheapest path. The revenue for the operator is determined by the tariff and the amount of usage of his arcs. The most natural model for the problem is a (bilinear) bilevel program, where the upper level problem is the pricing problem of the operator, and the lower level problem is a shortest path problem for each of the customers. This paper contains a compilation of theoretical and algorithmic results on the network Stackelberg pricing problem. The description of the theory and algorithms is generally informal and intuitive. We redefine the underlying network of the problem, to obtain a compact representation. Then we describe a basic branch-and-bound enumeration procedure. Both concepts are used for complexity issues and for the development of algorithms: establishing NP-hardness, approximability, special cases solvable in polynomial time, and an efficient exact branch-and-bound algorithm.Economics ;

Stackelberg Network Pricing Games

We study a multi-player one-round game termed Stackelberg Network Pricing Game, in which a leader can set prices for a subset of $m$ priceable edges in a graph. The other edges have a fixed cost. Based on the leader's decision one or more followers optimize a polynomial-time solvable combinatorial minimization problem and choose a minimum cost solution satisfying their requirements based on the fixed costs and the leader's prices. The leader receives as revenue the total amount of prices paid by the followers for priceable edges in their solutions, and the problem is to find revenue maximizing prices. Our model extends several known pricing problems, including single-minded and unit-demand pricing, as well as Stackelberg pricing for certain follower problems like shortest path or minimum spanning tree. Our first main result is a tight analysis of a single-price algorithm for the single follower game, which provides a $(1+\epsilon) \log m$-approximation for any $\epsilon >0$. This can be extended to provide a $(1+\epsilon)(\log k + \log m)$-approximation for the general problem and $k$ followers. The latter result is essentially best possible, as the problem is shown to be hard to approximate within \mathcal{O(\log^\epsilon k + \log^\epsilon m). If followers have demands, the single-price algorithm provides a $(1+\epsilon)m^2$-approximation, and the problem is hard to approximate within \mathcal{O(m^\epsilon) for some $\epsilon >0$. Our second main result is a polynomial time algorithm for revenue maximization in the special case of Stackelberg bipartite vertex cover, which is based on non-trivial max-flow and LP-duality techniques. Our results can be extended to provide constant-factor approximations for any constant number of followers

Specializations and Generalizations of the Stackelberg Minimum Spanning Tree Game

Let be given a graph $G=(V,E)$ whose edge set is partitioned into a set $R$ of \emph{red} edges and a set $B$ of \emph{blue} edges, and assume that red edges are weighted and form a spanning tree of $G$. Then, the \emph{Stackelberg Minimum Spanning Tree} (\stack) problem is that of pricing (i.e., weighting) the blue edges in such a way that the total weight of the blue edges selected in a minimum spanning tree of the resulting graph is maximized. \stack \ is known to be \apx-hard already when the number of distinct red weights is 2. In this paper we analyze some meaningful specializations and generalizations of \stack, which shed some more light on the computational complexity of the problem. More precisely, we first show that if $G$ is restricted to be \emph{complete}, then the following holds: (i) if there are only 2 distinct red weights, then the problem can be solved optimally (this contrasts with the corresponding \apx-hardness of the general problem); (ii) otherwise, the problem can be approximated within $7/4 + \epsilon$, for any $\epsilon > 0$. Afterwards, we define a natural extension of \stack, namely that in which blue edges have a non-negative \emph{activation cost} associated, and it is given a global \emph{activation budget} that must not be exceeded when pricing blue edges. Here, after showing that the very same approximation ratio as that of the original problem can be achieved, we prove that if the spanning tree of red edges can be rooted so as that any root-leaf path contains at most $h$ edges, then the problem admits a $(2h+\epsilon)$-approximation algorithm, for any $\epsilon > 0$.Comment: 22 pages, 7 figure

Pricing toll roads under uncertainty

We study the toll pricing problem when the non-toll costs on the network are not fixed and can vary over time. We assume that users who take their decisions, after the tolls are fixed, have full information of all costs before making their decision. Toll-setter, on the other hand, do not have any information of the future costs on the network. The only information toll-setter have is historical information (sample) of the network costs. In this work we study this problem on parallel networks and networks with few number of paths in single origin-destination setting. We formulate toll-setting problem in this setting as a distributionally robust optimization problem and propose a method to solve to it. We illustrate the usefulness of our approach by doing numerical experiments using a parallel network

Revenue Maximization in Stackelberg Pricing Games: Beyond the Combinatorial Setting

In a Stackelberg Pricing Game a distinguished player, the leader, chooses prices for a set of items, and the other players, the followers, each seeks to buy a minimum cost feasible subset of the items. The goal of the leader is to maximize her revenue, which is determined by the sold items and their prices. Most previously studied cases of such games can be captured by a combinatorial model where we have a base set of items, some with fixed prices, some priceable, and constraints on the subsets that are feasible for each follower. In this combinatorial setting, Briest et al. and Balcan et al. independently showed that the maximum revenue can be approximated to a factor of H_k ~ log(k), where k is the number of priceable items. Our results are twofold. First, we strongly generalize the model by letting the follower minimize any continuous function plus a linear term over any compact subset of R_(n>=0); the coefficients (or prices) in the linear term are chosen by the leader and determine her revenue. In particular, this includes the fundamental case of linear programs. We give a tight lower bound on the revenue of the leader, generalizing the results of Briest et al. and Balcan et al. Besides, we prove that it is strongly NP-hard to decide whether the optimum revenue exceeds the lower bound by an arbitrarily small factor. Second, we study the parameterized complexity of computing the optimal revenue with respect to the number k of priceable items. In the combinatorial setting, given an efficient algorithm for optimal follower solutions, the maximum revenue can be found by enumerating the 2^k subsets of priceable items and computing optimal prices via a result of Briest et al., giving time O(2^k|I|^c ) where |I| is the input size. Our main result here is a W[1]-hardness proof for the case where the followers minimize a linear program, ruling out running time f(k)|I|^c unless FPT = W[1] and ruling out time |I|^o(k) under the Exponential-Time Hypothesis