On the Complexity of the Highway Pricing Problem

Abstract

The highway pricing problem asks for prices to be determined for segments of a single highway such as to maximize the revenue obtainable from a given set of customers with known valuations. The problem is (weakly) NP-hard and a recent quasi-PTAS suggests that a PTAS might be in reach. Yet, so far it has resisted any attempt for constant-factor approximation algorithms. We relate the tractability of the problem to structural properties of customers'' valuations. We show that the problem becomes NP-hard as soon as the average valuations of customers are not homogeneous, even under further restrictions such as monotonicity. Moreover, we derive an efficient approximation algorithm, parameterized along the inhomogeneity of customers'' valuations. Finally, we discuss extensions of our results that go beyond the highway pricing problem.operations research and management science;