Dynamic Spatial Price Equilibrium, Nonlinear Freight Pricing, and Alternative Mathematical Formulations

This paper is meant as a guide for researchers interested in dynamic modeling of commodity flows from the perspective of spatial price equilibrium. In particular, we present a type of dynamic spatial price equilibrium (DSPE) in continuous time as a basis for modeling freight flows in a network economy. We consider the circumstance of a known matrix of travel times between all pairs of markets (origin-destination pairs) within a network for which paths (routes) are articulated. We also consider the unit cost of transport to be the sum of the price for freight services and a surcharge for backorders. Prices for freight services follow a nonlinear operator explained herein. That operator allows consideration of break-point pricing, as well as other forms of nonlinear pricing. The DSPE model considered is expressed four different ways. The first formulation is a nonlinear complementarity problem with explicit embedded dynamics describing the rate of change of inventories at each node as the net of production, consumption, import, and export, with explicit time shifts that account for shipping latencies. We also provide three alternative formulations: a differential complementarity system, a differential variation inequality, and a variational inequality based on a state operator. We discuss algorithms appropriate to each formulation and close with a discussion of future research needed to make DSPE models applicable to freight systems planning and the pricing of freight services.