Pricing Policy Optimization for an Autonomous Urban Air

Transportation Network

Jacob T. Needels
Stanford University, Department of Aeronautics and Astronautics

A Monte Carlo simulation of pricing dynamics for an autonomous UAM provider is devel-
oped. The gross profit of a two-parameter linear pricing policy is assessed and subsequently
optimized using a modified Hookes-Jeeves algorithm.
.

I. Nomenclature

α = Distance Pricing Parameter

β = Demand Pricing Parameter
π = Pricing Policy
t = Time
U = Fare Price
VTOL = Vertical Takeoff and Landing
xi = Vehicle Position
xj = Customer Position
xk = Customer Destination

II. Introduction
rban air mobility (UAM) can be defined as air transportation of passengers over ultra-short haul distances, typically
U within a single urban center. While UAM networks have operated in the United States for the last 70 years, ridership
is low relative to other methods of urban transportation due to challenges regarding profitability, safety, and vehicle
noise [1]. The development of reliable electric vertical takeoff and landing (EVTOL) vehicles, coupled with the advent
of on-demand mobility (ODM) in the ride-sharing sector, have the potential to retire a large number of the challenges
operators have been traditionally faced with.
UAM business models have been developed that utilize autonomous vehicles to transport passengers. Such a service
would feature ODM, allowing users to request rides from a mobile device. The primary goal of a UAM service provider
is profitability, meaning the optimal policy is that which maximizes net profit. For a system with fixed operating cost,
such as that considered in this study, this corresponds to maximizing gross profit. This paper describes the parametric
analysis of one pricing policy architecture, and resultant offline optimization.

III. Monte Carlo Simulation

A Monte Carlo simulation of UAM operations is described below. The simulation involves four components: a city
geography model, consumer demand model, pricing policy, and fare acceptance/rejection. Each sub-model is described
below. All simulation parameters use normalized units.

A. City Model
The topology of destinations within a city is represented by a complete, un-directed graph with nodes representing
potential destinations. While an actual urban center would have significantly more potential destinations, a network size
of ten nodes was selected to keep the simulation computationally tractable. An illustration of the topology used in this
study is given in 1 below.
The assumption that each node is accessible from all other locations is modeled by the fact that the graph is complete.
Distance between nodes is stored in a symmetric distance matrix, D, where di j encodes the travel distance between

1
 Fig. 1 10 Node Network

nodes i and j. An example of a distance matrix for a 10 node network is shown below.
 
 0 10 2 10 7 1 3 6 10 10
 
 
10 0 10 5 9 2 5 10 8 10
 
 2 10 0 10 7 8 8 4 7 2 
 
10 5 10 0 1 9 7 4 10 1 
 
 
7 9 7 1 0 5 5 7 8 8 
D = 
1 2 8 9 5 0 10 4 6 3 
 
3 5 8 7 5 10 0 2 2 3 
 
 6 10 4 4 7 4 2 0 7 5 
 
10 8 7 10 8 6 2 7 0 6 
 
 
10 10 2 1 8 3 3 5 6 0 
Randomized distance matrices are used for each simulation, where the maximum distance value between any two
nodes is specified by the user. A distance cap of 10 is used in the simulations reported in this paper. An assumption is
made that there is insufficient air traffic to appreciably alter travel times, therefore trip duration and travel times between
nodes are constant during a simulation.

B. User Demand Model

User demand is modeled by the likelihood that a customer will request a ride from a given node during a given time
interval. While a fully realized UAM provider might have hundreds to thousands of vehicles operating at a given time,
requiring a complex dispatch and queueing system, the focus of this research is on pricing dynamics for a single vehicle,
and so the user demand model has been simplified under the assumption that one or fewer customers requests a ride at
each time-step, and no queuing system is implemented.
Several models of consumer demand exist in the literature. [2] provides an overview, with a focus on specific
application to ultra-short haul air transport. A probabilistic, time dependent model of consumer demand is used in
this study, such that probability of a customer requesting a ride can be increased at peak demand hours. A sinusoidal
function was used to model variation in consumer demand as a function of time.

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C. Pricing Policy
The pricing policy, π is a function that maps the system state, x®, into a fare quote, U.

U = π( x®)

The elements of the system state are arbitrary. For this simulation, the system state is composed of four components:
vehicle position, customer position, customer destination, and time.

x® = [xi, x j , xk , t]

Like the elements of the state, the functional form of the pricing policy is arbitrary. To reduce the scope of the
design space, a decision was made to use a pricing policy linear in two parameters.

U = α(di j + d jk ) + β f (t)

Where di j is the distance between the i th and j th nodes, retrieved from the distance matrix D. The parameter α serves as
a "cost-per-mile", weighting the cost contribution of the total distance traveled. A second parameter, β, weights the
contribution of demand pricing to the overall cost. f (t) is a demand pricing function that varies sinusoidally, so as to be
in phase with the variation in user demand.

D. Customer Fare Acceptance/Rejection

The final component of the model is a fare acceptance/rejection model, which determines whether the customer
will accept or reject the price quote determined by the pricing policy. In order to simplify the model, we make the
assumption that the principal component in fare acceptance/rejection is cost, and that other factors do not substantially
affect the customer’s decision. Several models of user demand as a function of price have been described in the literature
[2]. A Normal cumulative distribution function was selected, such that the higher a price policy quote is, the smaller the
the chance it will be accepted by the customer. Total gross profit of the vehicle is determined by summing the accepted
fares over the operating period Õ
P= Uaccepted

IV. Results

A. Simulation Results
Each run of the Monte Carlo simulation produces a single value for gross profit. Results run over the discretized
two-parameter design space produce an objective function surface. Due to the stochastic nature of the Monte Carlo, the
resulting output of a single simulation does not produce a smooth surface, as seen in 2 below.
This can be problematic from an optimization perspective, since the optimizer can easily become trapped by local
extrema. In order to smooth the data, simulation results were averaged over 10 runs. Data was additionally smoothed
using a Savitsky-Golay algorithm, which provides a low order polynomial fit between data points, as shown in 3 below.
Since smoothing using a filter results in loss of data, there is a trade-off between computational resources and
objective function accuracy in choosing how many simulations to perform, which constitutes an optimization problem
in its own right. Trial of several different numbers of simualtions demonstrated that marginal increases in response
surface smoothness decrease significantly after 10 simulations, and therefore that value is used as the cutoff.

B. Optimization
Direct methods are employed to determine the optimal policy. The goal of the optimizer is to locate the global
maximum of the profit surface.
A modified Hookes-Jeeves algorithm was employed to optimize the function. The canonical Hookes-Jeeves
algorithm performs 2n function evaluations at each point in order to optimize data with an n-dimensional spanning set[3].
To speed up convergence, the algorithm employed here is opportunistic: once an improvement is detected in an adjacent
point, it becomes the new anchor point. Since the simulation is conducted on a uniform Cartesian mesh, a spanning set
consisting of the Cartesian basis vectors is employed, with constant step-size equal to the grid discretization.
The path of the of the optimizer is illustrated in 4 below, plotted on a contour map of smoothed simulation results in
the α − β plane. The path shown below is the best of 100 randomly seeded trials.

3
 Fig. 2 Single Simulation

Fig. 3 Smoothed Data

Since the design space is small, computationally efficient verification of the optimizer was possible using MATLAB’s
built-in max() function to determine the true global maximum of the data. Below shows a comparison of the optimizer
performance to the global maximum averaged over 5 runs.

C. Discussion
While local variations exist in the response surface between runs, the global shape is consistent with expectations.
The points associated with the extrema of the policy parameters resulting in the lowest profit: at [α, β] = [0, 0] this is
because the pricing policy returns a fare price of zero, and for [α, β] = [5, 5] the fare price returned is so high that it is
uniformly rejected by all consumers. The optimal policies lie along a diagonal band in the α − β plane.
The location of the global in a region a region of moderate price-per-mile and low demand pricing. This is likely an

4
 Fig. 4 Optimizer Path

Table 1 Averaged Optimizer Performance (Normalized Gross Profit)

Modified Hookes-Jeeves Optimum Global Optimum Percent Difference

118.75 120.60 1.53

artifact of the modeling choice to not include demand dynamics in the fare acceptance/rejection model. If these effects
were included, i.e. at peak hours customers are more likely to accept a more expensive ride, the optimum would likely
skew to a higher value of β.

V. Conclusion
A Monte-Carlo simulation of a single UAM vehicle has been developed to test variation in pricing policy of pricing
policy on gross profit. The resulting profit surface was optimized using an opportunistic Hookes-Jeeves algorithm, to
efficiently locate the pricing policy that maximizes company profit. Globally optima were found to lie in a region of
moderate price-per-mile and low demand pricing, though this may be an artifact of modeling assumptions.
The results developed here present several opportunities for forward work. Higher fidelity models of customer
demand and fare acceptance/rejection would allow for further model validation. Application of expression optimization
would allow for assessment of a wider variety of pricing policies. Finally, the Monte Carlo simulation developed here
can be expanded to include multiple vehicles with the associated dispatch and control mechanisms associated with a real
UAM service provider.

References
[1] Thipphavong, e. a., DP, “Urban Air Mobility Airspace Integration Concepts and Considerations,” 2018.

[2] Mann, R. W., “Systems Optimization in Ultra Short Haul Air Transportation,” 1975.

[3] Kochenderfer, W. T. A., M J, Algorithms for Optimization, The MIT Press, 2019.