Optimal Intercity Transportation Services With Heterogeneous Demand and Variable Fuel Price

We examine how fuel price variation resulting from either market forces or environmental policy initiatives affects the optimal mix of services in intercity transportation. We develop analytic continuum approximation total logistics cost (TLC) models of intercity transportation that are sensitive to fuel price, incorporate multiple classes of vehicles, and serve passengers with differentiated values of time. We find that under high fuel prices, the TLC is minimized by effectively segregating passengers on different types of vehicles according to their values of time. Numerical examples confirm the cost advantage of serving intercity corridors with diversified transportation services.