Group for Research in Decision Analysis

G-2002-61

Design and Analysis of an Approximation Algorithm for Stackelberg Network Pricing

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We consider the problem of maximizing the revenue raised from tolls set on the arcs of a transportation network, under the constraint that users are assigned to toll-compatible shortest paths. We first prove that this problem is strongly NP-hard. We then provide a polynomial time algorithm with a worst-case precision guarantee of (1/2)log mT+1, where mT denotes the number of toll arcs. Finally we show that the approximation is tight with respect to a natural relaxation by constructing a family of instances for which the relaxation gap is reached.

, 23 pages

This cahier was revised in March 2003