Vehicle Sharing: Operational Challenges and Opportunities

Project summary:

On-demand vehicle sharing is a prominent application of the sharing economy that emerged in recent years. It differs from traditional vehicle rental in that the service is provided on an on-demand basis and with more flexibility. Customers only rent the vehicles on a short-term basis as their need for service arises, and vehicles can be returned to a location different from where they are rented (referred to as one-way rental). While such flexibility increases convenience for users, it also makes the operation of these systems more challenging than that of traditional rental systems where vehicles are rented for a longer time period (thereby capacity allocation can sometimes be planned in advance) and are always returned to the location where they are picked up (referred to as roundtrip rental). In the presence of one-way service, the size of the fleet must account not only for the randomness in demand and rental duration but also for the randomness in the number of vehicles that are available at each location due to vehicle roaming (vehicles not returning to the same location from which they were picked up).

In this project, researchers will study the management of on-demand vehicle sharing systems while accounting for the distinctive operational features implied by the underlying queueing dynamics. Specifically, the research team models the vehicle sharing system as a closed-queueing network where the items moving through the network correspond to vehicles. By deriving closed-form approximations of key system performance, researchers reveal important insights into the determining factors that affect its operations. The research team will then utilize the results and insights to study various problems in the management of the system including fleet sizing, service pricing, vehicle repositioning, and service region design.

This study sheds light on the challenges of operating an on-demand service system. The results of the project (confirmed in preliminary work) will highlight the fact that one-way vehicle sharing systems may be substantially more expensive to operate than systems that require roundtrips. The economic viability of the one-way model crucially depends on the strategy to control the operations cost and the additional revenue from the increased convenience of one-way service. The outcomes of this project will help firms to make decisions in terms of the design, planning, and operation of vehicle sharing systems, which can not only bring economic benefit for the firm but also lead to improved quality and coverage of service, thereby increasing customer welfare.