WORKING PAPER SERIES

Dynamic Priority Rules for Combining On-Demand

Passenger Transportation and Transportation of Goods

Alexander Bosse/Marlin W. Ulmer/Emanuele Manni/Dirk C. Mattfeld

Working Paper No. 6/2022

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Herausgeber:
Otto-von-Guericke-Universität Magdeburg
Fakultät für Wirtschaftswissenschaft
DFS Dekan

Verantwortlich für diese Ausgabe:

A. Bosse, M. W. Ulmer, E. Manni, D. C. Mattfeld
Otto-von-Guericke-Universität Magdeburg
Fakultät für Wirtschaftswissenschaft
Postfach 4120
39016 Magdeburg
Germany

http://www.Gww.PWHVEF/femm

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ISSN 1615-4274
 Dynamic Priority Rules for Combining On-Demand
Passenger Transportation and Transportation of Goods

Alexander Bosse, Marlin W. Ulmer, Emanuele Manni, Dirk C. Mattfeld

Abstract

Urban on-demand transportation services are booming, in both passenger transportation

and the transportation of goods. The types of service differ in timeliness and compensation and,
until now, providers operate larger fleets separately for each type of service. While this may
ensure sufficient resources for lucrative passenger transportation, the separation also leaves
consolidation potentials untapped. In this paper, we propose combining both services in an
anticipatory way that ensures high passenger service rates while simultaneously transporting a
large number of goods. To this end, we introduce a dynamic priority policy that uses a time-
dependent percentage of vehicles mainly to serve passengers. To find effective time-dependent
parametrizations given a limited number of runtime-expensive simulations, we apply Bayesian
Optimization. We show that our anticipatory policy increases revenue and service rates sig-
nificantly while a myopic combination of service may actually lead to inferior performance
compared to using two separate fleets.

Keywords: Routing, Stochastic dynamic vehicle routing, Ride-hailing, Instant delivery, Bayesian
Optimization

1 Introduction
The demand for urban mobility and transportation services is constantly increasing. Every day,
customers spontaneously demand services such as passenger transportation (e.g., ride-hailing) or
the transportation of goods (e.g., instant delivery or courier services). Companies often focus
on either mobility or transportation demand, for example, Lyft or MOIA (mobility) and Amazon

1
Prime Now or GoPuff (delivery of goods). When serving both types of demand, they usually
dispatch different fleets, one for each type of service (e.g. UberPool and UberEats).
Both types of service occur at the same time in the same areas. Thus, by focusing on only one
type of service or by splitting the fleet, companies miss several consolidation opportunities. For
example, a mobility service vehicle could perform transportation of goods nearby mobility demand
or at times when mobility demand is relatively small. Serving passengers and transporting goods
by one combined fleet comes with additional challenges. Mobility and transportation services
differ in both revenue and service requirements. While passenger transportation often provides
comparably high revenue, it requires fast service. For the transportation of goods, the revenue is
relatively small, but the available time to fulfill the demand may be longer, for example, 2 hours
for Amazon Prime Now delivery. Thus, in a combined setting, the question arises how to use the
fleet effectively. Focusing only on mobility demand may lead to many missed opportunities for
transporting goods and consolidation while satisfying every transportation demand at all cost may
consume resources required for later mobility demand. Utilizing the fleet effectively is therefore
challenging, especially when the ratio of mobility and transportation requests varies over time.
The resulting optimization problem is a stochastic dynamic pickup and delivery problem with
heterogeneous customer requests differing in deadlines and revenue. Over the course of the day,
customers request passenger transportation or the transportation of goods. Both types of requests
require the timely pickup at a location and the drop off or delivery at another location in the city.
We assume the time allowed to satisfy a request depends on the travel time between pickup and
delivery, plus some additional time which is shorter for passenger transportation. The revenue per
request also depends on the type of service and is significantly higher for passenger transportation.
Whenever a customer requests service, decisions are made about if and how the service can be
fulfilled by the fleet. If the service is declined, the company loses the corresponding revenue and
creates an unhappy customer. Thus, we set the goal to minimizing the lost revenue (later, we show
that this also reduces the percentage of unhappy customers).
Deriving effective decision for this problem is challenging for several reasons. First, decisions
are made without knowing future demand for both passenger transportation and transportation of
goods. Second, decisions impact the fleet’s potential for future services. Third, complex assign-
ment and routing decisions need to made in real time for problems with large fleets and many
customers. Thus, we propose an intuitive, global strategy. During the day, a part of the fleet serves
lucrative passenger requests with priority, i.e. goods are only transported by these vehicles if they
are “along the way”. Getting the priorities right is challenging as they should capture the current
and future demand ratio of passengers and goods as well as consolidation effects. Further, as the
demand-ratio varies over time, fixed priority rates are insufficient, a dynamic variation over time
is required. Therefore, we propose time-dependent priority rates. A priority policy can therefore

2
be represented by a priority rate function over the time horizon. In our experiments, we compare
Fourier-series and Taylor-series (i.e. polynomial) functions as both are often used to approximate
more complex functions. For finding the right parametrization of the respective functions, we
turn to Bayesian Optimization (BO, Frazier 2018). For a given function space, BO searches the
parametrization-space by carefully balancing exploration and exploitation. Our experiments show
that combining passenger and good transportation can be very beneficial if a fitting strategy is ap-
plied. Furhter, priority rules are an intuitive mean to reduce lost revenue significantly. Furthermore,
the number of unhappy customers can also be reduced. Making priorities time-dependent is very
beneficial, especially when the demand-ratio of passenger and good-requests varies. Finally, rely-
ing of Fourier-functions for representing priority rates is advantageous compared to polynomials,
likely, because they are restricted and can capture less “clean” developments.
Our paper makes the following contributions: Our work is among the first that considers central-
ized anticipatory optimization for combined on-demand services of passenger transportation and
transportation of goods. We propose an effective and intuitive strategy that allows instant deci-
sion making for larger fleets. Our work is the first in dynamic vehicle routing that determines
a time-dependent policy-parametrization via Fourier-series functions and Bayesian Optimization.
We conduct extensive computational experiments to analyze the value and effect of priority rules
for combined services as well as the functionality of BO.
The structure of this article is as follows. In Section 2, we give an overview on the related literature.
In Section 3, we present the problem statement and provide a mathematical model. In Section 4, we
explain our solution approach. In Section 5, we describe a computational study that was conducted
and analyse the results to give managerial implications. We conclude our article in Section 6.

2 Literature Review
In this section, we give an overview of related literature. Our work considers transportation of
goods and passengers in a stochastic dynamic setting with a large fleet. We will first review lit-
erature on combined transportation of passengers and goods. Then, we will provide an overview
on anticipatory policies in stochastic dynamic vehicle routing, especially in combination with fast
large-scale optimization.

2.1 Combined Passenger Transport and Transportation of Goods

Work on both dynamic passenger and good transportation services is comparably large, we refer to
Soeffker et al. (2022) for a recent survey on dynamic transportation of goods and Tafreshian et al.
(2020) for a survey on dynamic passenger transportation. However, work on combining them is

3
limited. Further, the vast majority of work is done in a static deterministic setting, i.e., all informa-
tion is known in advance. The majority of this work considers parcel or freight transportation via
public transportation systems. We refer to Hörsting and Cleophas (2021) and Elbert and Rentschler
(2021) for recent overviews. Most of the considered problems in this field are fully deterministic,
only a few consider uncertainty (Ghilas et al. 2016, Mourad et al. 2019, 2021).
Besides using public transport, there is also an increasing amount of work that considers stochastic
dynamic combinations of parcel delivery with mobility on demand (see Beirigo et al. 2018 and
Fehn et al. 2022 for recent overviews).
Li et al. (2014) consider a ride-sharing problem with freight transportation. They model the static
problem and simulate it in a dynamic environment to analyze the impact of different parametriza-
tions. Chen et al. (2017) also consider combined transport of passengers and packages with taxis.
They apply a rolling-horizon simulation, however, they prohibit package delivery during rush
hours. We show that our policies can combine services even at times when passenger demand
is relatively high, achieving high service rates for both services. Chen et al. (2020) extend the
work by Chen et al. (2017) by considering multi-hop package delivery via taxis. Manchella et al.
also present work on ride-pooling for passengers and multi-hop transfers for goods. They present
an agent-based simulation and a reinforcement learning algorithm for repositioning idling vehi-
cles. Thus, while they anticipate future demand in general, they do not consider different types
of demand in detail. We note that their repositioning approach may likely complement our work.
Schlenther et al. (2020) present a simulation approach where both passengers and parcels are trans-
ported by the same fleet. They propose to not serve all feasible requests but reject requests that
require longer travel of the corresponding vehicle. We test a similar concept with our cost-benefit
benchmark CB. We show that while this leads to improved revenue compared to myopic decision
making, it is doing so by transporting only a very limited number of parcels and solely focusing
on lucrative passenger transportation. Romano Alho et al. (2021) analyze joint transportation of
passengers and parcels with mobility-on-demand vehicles. They provide an agent-based simula-
tion to analyze different problem parameters as well as assignment and repositioning strategies.
Meinhardt et al. (2022) considers joint transportation of passengers and freight with autonomous
vehicles. Passengers have a higher priority and cannot be served together with parcels. They pro-
vide an agent-based simulation to analyze the value of combined services. Finally, in Fehn et al.
(2022), combined delivery of parcels and passengers is evaluated via agent-based simulation. The
authors show that combining both services is superior to service by two individual fleets.
While the aforementioned papers consider joint transportation, none of the work considers central-
ized anticipatory optimization as we propose in our work. In many cases, no central decisions are
made considering the entire fleet setup, but decisions are made agent-based on individual vehicle
level. In our work, we propose a global strategy considering and orchestrating the entire fleet.

4
Furthermore, for nearly all mentioned papers, decision making is based on reoptimization, i.e.,
potential future developments are not considered in the assignment and routing of demand. We use
a similar strategy called Myopic as one of our benchmark policies. In our case study, we show that
such a myopic strategy may not always be advantageous compared to individual fleets. That means
that in some cases, it might be advantageous to keep the services separate, unless a anticipatory
policy is used.

2.2 Stochastic Dynamic Vehicle Routing

Research on stochastic dynamic vehicle routing problems has be receiving increasing attention
recently, see Soeffker et al. (2022) for a recent overview.
The most related paper compared to our work is the work by Ghiani et al. (2022). In their work,
they analyze courier services with heterogeneous demand classes. Some packages are urgent and
have to be delivered fast, others are allowed to take longer. Delayed delivery leads to different
penalties dependent on the service class. The goal is to minimize the overall penalty while ser-
vice all customers. The authors propose reserving a percentage of vehicles exclusively for urgent
delivery. They adapt the percentage based on observed demand. The results show that reserving
vehicles will improve service for the valuable first class on the expense of the service for lower
classes. Our work differs from Ghiani et al. (2022) in problem, model, and methodology. We
consider combined transport of passengers and goods with hard time constraints, aiming for a high
revenue. Further while our method follows a related idea, serving passengers with priority, the
priority fleet can be used to transport goods as well. This leads to improved services for both
passenger and good transportation. Finally, our policy aims on longer term anticipation since de-
cisions now impact the state several hours into the future. Thus, instead of focusing on realized
demand, we anticipate the demand over the entire day. Our experiments show the benefits of this
procedure compared to a more local view of Ghiani et al. (2022) which we adapt in our benchmark
policy TD(CA).
Besides the work by Ghiani et al. (2022), several other papers propose anticipatory methods that
take decisions with respect to future developments. Some papers transfer analytical considera-
tions into algorithms, e.g., via waiting strategies (Mitrović-Minić et al. 2004, Branke et al. 2005,
Thomas 2007), by proactive repositioning strategies (Sheridan et al. 2013), by threshold-policies
(Ulmer and Streng 2019, Ulmer et al. 2022), or by adding safety buffers (Ulmer et al. 2021) and
penalty terms (Riley et al. 2020). A larger number of papers propose data-driven methods, for
example, sampling future developments and incorporating them into decision making (e.g., Bent
and Van Hentenryck 2004, Ghiani et al. 2009, Ferrucci et al. 2013, Schilde et al. 2014, Voccia
et al. 2019), or simulating the future to evaluate current decisions (e.g. Secomandi 2001, Goodson
et al. 2013, Ulmer et al. 2019, Brinkmann et al. 2019). Recently, there has also been an increase

5
in reinforcement learning approaches that iteratively learn the values of different decisions (e.g.
Ulmer et al. 2018a,b, Kullman et al. 2021, Al-Kanj et al. 2020, Chen et al. 2022).
The latter two approaches have in common that they are often applied to smaller or simplified
problems, either by only considering a few vehicles, decomposing the decision making by focusing
on individual vehicles or by condensing the problems to dynamic assignment or resource allocation
problems without explicitly routing vehicles (Hildebrandt et al. 2021).
In our problem, real-time decision making for a larger fleet is required and decisions are made
about complex routing with pickup and delivery and time constraints. Therefore, we propose a
global strategy, focusing on the assignment while considering the entire fleet. We note though
that our method is complementary to other, more detailed methods, e.g., for slotting or pricing for
customer requests or for routing and repositioning of individual vehicles.

3 Problem Statement
In this section, we first give a general description of the problem at hand. We then propose a
formulation of the problem as sequential decision process and explain the different components of
the model. Finally, we give a small example to better understand the problem characteristics and
model.

3.1 Problem Overview

The problem can be modeled as a stochastic dynamic pickup and delivery problem with heteroge-
neous services. Over a time horizon, a fleet of capacitated vehicles serves passenger and freight
transportation requests. The requests are unknown until the time of request. Each request has an
origin, a destination, a deadline for the pickup and the delivery, and a revenue. The deadlines and
revenue depend on the type of request and the travel time between origin and destination. For pas-
senger transportation requests, the deadlines are closer to the time of the request and the revenue
is larger compared to a freight transportation request. Whenever a new request arises, the provider
decides about if service can be offered and how to integrate the request in the routing currently
planned for the vehicles. We assume that vehicles cannot be diverted from their next stop in the
current route, but routes can only change for later stops. All vehicles start at the same location, the
depot. Vehicles do not have to return to the depot after fulfilling the last request of their current
route, but wait for new requests or the end of the working day instead. The objective is to minimize
the lost revenue in case customer requests cannot be satisfied.

6
3.2 Mathematical Model
In the following, we describe the problem and decision process as a sequential decision process
(Powell 2019). A sequential decision process consists of five key components: decision epochs,
states, decisions with reward, stochastic information and a transition function.

3.2.1 Decision Epochs

Decision points refer to points in time in which the decision maker has to decide what actions
should be performed next based on the information that is known so far. The time span between
two decision points is called decision epoch. In our case, a decision is made whenever a new
request arises. We define K = {0, 1, . . . , kmax } as the set of all possible decision points where
kmax is the last decision point. Further, each decision point k ∈ K is associated with a system time
tk ∈ T = {0, 1, . . . , tmax } where T is the set of all possible system times and tmax is the length of
the time horizon.

3.2.2 States

For every decision point, the system is in a certain state. The state in decision point k is called sk ∈
S where S is the set of all possible system states. A system state contains information about the
current system time tk . Further it contains information about the next position of the vehicles and
when they will be there and their currently planned routes, the set of requests still to serve, whether
they are already on a vehicle or not, and their corresponding deadlines. Further, a state contains
a new request. The information of vehicles and already accepted requests can be encapsulated in
the vehicles’ planned routes. We denote the set of routes in state sk as rk = {rk,1 , . . . , rk,n } where
rk,i is the route of vehicle i ∈ {1, . . . , n} at decision point k. A route rk,i is defined as a sequence
of pickup and delivery locations that the vehicle is planned to visit, associated with the arrival
time at each location, and in case of delivery, the latest time the delivery needs to take place. For
the purpose of presentation, we omit full notation of the routes. For the full model, we refer to
Section 6 in Ulmer et al. (2020).
Finally, a state contains a new customer request ck associated with the time of the request tk as
well as information on the type (either passenger or good), the locations of pickup and delivery,
and the revenue Rk . In summary, a system state can be defined as a tuple sk = (tk , rk , ck ).

3.2.3 Decisions

Whenever a new request arises the decision maker has to make decision xk ∈ X(sk ) where X(sk )
is the set of all possible actions in system state sk . In our case, the decision contains two parts,

7
xk = (αkx , rkx ). The first part indicated by αkx ∈ {0, 1} is the decision of the request is acceptance
for service (αkx = 1) or not (αkx = 0). The second part rkx is about the update of the routing. A
decision is feasible if the routing rkx does not lead to capacity violations and ensures in-time service
for all already accepted requests, and in case of αkx = 1 also the new request.
For our problem, the “Reward” are the lost revenues in case a request is not accepted for service.
Thus, we define the reward function given state sk and decision xk as

R(sk , xk ) = (1 − αkx ) × Rk (1)

3.2.4 Stochastic Information and Transition Function

After a decision is selected, stochastic information ωk+1 is revealed. For our problem, the stochastic
information comprises a new request ωk+1 = {ck+1 } with the associated information on time tk+1 ,
type, locations, and revenue.
Based on state sk , decision xk , and stochastic information ωk+1 , a transition function T (sk , xk , ωk+1 )
leads to a new state sk+1 . The function sets the time to tk+1 . The routes rkx are truncated by remov-
ing all stops with arrival time smaller than tk+1 . Finally, the new request is ck+1 .
Alternatively to a new request, the stochastic information may also be an empty set (ωk+1 = {}),
meaning that no additional request occurs. In that case the transition function leads to the final
state and the process terminates.

3.2.5 Objective Function

A solution of the problem is a decision policy π ∈ Π with a decision rule X π : S 7→ Xk that

describes which decision should be chosen when the system is in a specific state, i.e. X π (sk ) = xk .
The objective is then to find a policy that minimizes the expected total lost revenue when starting
in initial state s0 :
kX
max

min E R(sk , X π (sk )|s0 ) (2)

π∈Π
k=0

4 Approach
In the following, we present our solution approach. We first give a motivation and conceptual
overview and then present the algorithmic details.

8
4.1 Motivation
Finding solutions for this stochastic and dynamic problem is very challenging due to the infamous
curses of dimensionality (Powell 2011). Additionally, companies usually employ a larger fleet
of vehicles to serve a vast number of requests per day. Furthermore, customers expect immediate
responses to their requests. Thus, we propose an intuitive policy applicable to large-scale instances,
letting a percentage of the fleet serve passengers with priority. The idea is related to the work by
Ghiani et al. (2022) as well as to the scheduling literature where important “jobs” are given priority
(see, e.g, Chen et al. 2018).
For our dynamic routing problem, we let a certain percentage of the fleet serve lucrative passenger
transportation requests with priority. Transportation of good-requests are only assigned to the
priority vehicles in case the resulting detour is very small. The remaining vehicles are free to
serve both types of request. Prioritizing mobility demand for some vehicles has two purposes.
First, it ensures available vehicles in case a mobility request arises. Second, it shifts transportation
demand to the remaining fleet. Because the time to serve transportation requests is longer, this
fosters potential consolidation opportunities with future transportation requests. Given a priority
percentage, our routing heuristic iterates through all vehicles and checks whether the new request
can be feasibly inserted in the existing route. In case of a transportation request and a priority
vehicle, the heuristic also checks if the detour required to serve the request is below the threshold.
Else, the vehicle is also indicated as infeasible. The heuristic assigns the request to the feasible
vehicle with smallest detour. In case there is no feasible vehicle available, service can not be
offered.
Setting a priority percentage is not trivial. If the percentage is too low, there may not be sufficient
resources available to serve new mobility requests and the high revenue is lost. If the percentage is
too high, priority vehicles may idle, transportation opportunities may be missed and lost revenue
accumulates. Furthermore, the routes of non-priority vehicles may congest faster. As demand for
passenger transportation and transportation of goods may vary over the course of the day, differ-
ent percentages may be suitable for different states of the problem. The right percentage depends
on a variety of factors, for example, the current workload, the ratio between mobility and trans-
portation demand, and the expected future demand. Due to these interdependencies, analytical
derivations are challenging and a derivative-free search of the solution space is required. However,
the evaluation of a given percentage solution requires multiple simulation runs and is therefore
quite time-consuming. This further complicates the search of a good percentage solution. To allow
derivate-free search with only a limited number of evaluations, we turn to Bayesian Optimization
(BO, Frazier 2018). The idea of BO is to search a vector space for a high-quality solution, espe-
cially in cases (as for our problem) where the objective function does not have a “clean” functional
form and where the evaluation of a vector’s objective value is time consuming. To this end, BO

9
carefully balances exploitation of already found, good solutions and exploration of unknown areas
of the vector space. While BO is still relatively unexplored in the vehicle routing literature, its
advantage of finding good parametrizations within a few iterations is well-suited for this research
domain where evaluating policies via simulation is quite time-consuming. For example, Dandl
et al. (2021) use BO to parametrize a mobility-on-demand policy to balance revenue and social
welfare.
To apply BO to our problem, we focus on one important state parameter, the point of time as it has
been shown to be a good surrogate for the general state of the system (Ulmer et al. 2022). Thus, we
represent the priority policy by a function based on time p(t). The value p(t) ∈ [0, 1] indicates the
share of vehicles that is serving passengers with priority given a new request in time t. To apply
BO, we only consider functions from a predefined space of functions, p(t) ∈ Ft . We test different
function spaces (Fourier series, Polynomials) of different degrees. Each function from a function
space can be represented by a parametrization a0 , . . . , an with n depending on the corresponding
space and degree. Given a function space, we search the best parametrization via BO.
In the remainder of this section, we present the procedure in detail. First, we briefly describe our
runtime-efficient assignment and routing heuristic given a parameter p(t). We then describe the
BO-procedure to determine function p.

4.2 Assignment and Routing Heuristic

For assignment and routing, we extend a runtime-efficient insertion procedure which has proven
effective compared to more elaborate optimization methods in similar settings (Ulmer 2020). In
its original version, given a state Sk with new request ck , the procedure iterates through the routes
rk,i of the vehicles to search for the most efficient, feasible insertion of both pickup and delivery
location. To integrate the reservation percentage p(tk ), we extend the procedure by considering
both fleets differently. We apply the procedure separately for the first p(tk )-percentage of vehicles
Vr (priority vehicles) and for the remaining 1 − p(tk ), non-priority vehicles Vu (A potentially frac-
tionally priority vehicle is treated as a normal priority vehicle). For both, the most fitting, feasible
vehicle vr ∈ Vr (vu ∈ Vu ) with the respective additional tour duration dr (du ) are determined. If
the new request ck is a passenger, the request is assigned to the vehicle of both fleets with minimal
extension. If the new request ck is for transporting a good, the assignment becomes more complex.
In case, the priority fleet can serve this request very efficiently (and dr < du ), we allow the service
by the priority fleet. We model this with a maximum detour threshold dmax for the priority fleet. In
every other case, the request is assigned to vehicle vu if service by the non-priority fleet is feasible.
Else, the request is rejected.
The algorithmic procedure for a new request in time tk is described by Algorithm 1. First, we split
the fleet V into priority Vr and non-priority part Vu given priority parameter p(tk ) (line 2). We

10
Algorithm 1 Assignment and routing for a new requests
1: procedure NEW R EQUEST(ck )
2: (Vr , Vu ) = S PLIT F LEET(V, p(tk ))
3: (vr , dr ) = B EST F EASIBLE I NSERTION(Vr , ck )
4: (vu , du ) = B EST F EASIBLE I NSERTION(Vu , ck )
5: i ← null
6: if vu ̸= null or vr ̸= null then ▷ Service is feasible
7: if dr < du then ▷ Service by priority fleet is more efficient
8: if TYPE(ck ) = passenger or dr <= dmax then
9: i ← vr ▷ Assignment if passenger or very efficient service by vr
10: else
11: i ← vu ▷ Assignment if good and no efficient service by vr
12: end if
13: else
14: i ← vu ▷ Assignment to no-priority vehicle vu
15: end if
16: if i ̸= null then ▷ Feasible assignment found
17: Accept request ck
18: Update route rk,i
19: else
20: Reject request ck
21: end if
22: else
23: Reject request ck
24: end if
25: end procedure

11
 Priority function (parameters)

Bayesian
Simulation
Optimization

Evaluation (objective value)

Figure 1: Interaction between Bayesian Optimization and Simulation

then determine the priority (vr ) and non-priority vehicle (vu ) with the best feasible insertion of all
priority (Vr ) and non-priority vehicles (Vu ), i.e. the vehicle that needs the shortest detour for ck
and can still meet the deadlines of all requests assigned to them, and their corresponding needed
detour dr and du , respectively (lines 3-4). If a feasible insertion is found, we then choose the
vehicle with the shortest detour and assign its index to variable i (lines 6-15). If a priority vehicle
has the shortest detour, we need to differentiate between requests with transportation of passengers
and with transportation of goods (lines 7-12). Assigning the request to a priority vehicle is only
possible if ck is either a passenger transportation request or the detour dr does not exceed the
maximum allowed detour for requests with transportation of goods (dmax ). Otherwise the best
non-priority vehicle (vu ) is chosen. After choosing a suitable vehicle, request ck is accepted and
route rk,i of vehicle i is updated (lines 16-21). If no feasible insertion is found or the needed detour
for the transportation of a good is too long, request ck is rejected and the objective function value
is updated (lines 22-24).

4.3 Bayesian Optimization

To determine the priority function p(t), we apply Bayesian Optimization. The general procedure
is presented in Figure 1. We iteratively apply BO and simulation of the corresponding policies.
In every iteration i, BO provides us with a parametrization ai0 , . . . , ain of the priority function pi .
i
For evaluation, the corresponding policy π p is simulated a large number of times, in our case,
200 times to achieve a reliable evaluation of the parametrization. This evaluation, i.e., the average
i
objective value V (π p ) is then fed to the BO again which then determines the next set of parameters
ai+1 i+1
0 , . . . , an . We repeat this procedure 200 times (i = 1, . . . , 200) to ensure convergence.

12
As function spaces, we apply two different types of functions, polynomials and trigonometrical
functions, both often used to approximate more-complex functions via Taylor- or Fourier-series,
respectively. First, we test to represent the parameter function via polynomials:

N
X
p(t) = an × x n . (3)
n=0

Second, we model the priority function via Fourier-series:

N     
X 2π 2π
p(t) = a0 + an cos nt + bn sin nt . (4)
n=1
tmax tmax

For both function types, we perform a min-max-normalization to ensure the priority values are
always between 0 and 1. Setting the value N is challenging, as it balances the potential of obtaining
better solutions with increasing function space size by the challenge of finding them. Thus, we
apply different parametrization with N = 2, 3, 4 leading to 3-, 4-, and 5-dimensional vectors for
the polynomials and to 5-, 7-, and 9- dimensional vectors for the Fourier-series. We note that each
higher degree parametrization can represent lower degrees, thus, in theory, the performance of
functions with higher N should be superior. However, as our results show for both function-types,
if N is too high, the solution quality decreases (again) since the solution space becomes too large.
For each function-type and each value of N , we run 200 iterations of BO and evaluate each solution
by 200 simulation runs of the routing heuristic. For each instance setting, we select the best found
parametrization for each function-type to be applied in our computational study. We denote the
corresponding policies TD(F) and TD(P) with “TD” indicating time-dependent priorities and “F”
(“P”) indicating Fourier-functions (polynomials).
For BO, we rely on the tuning provided by the BayesianOptimization module of GPyOpt, a open-
source Python library developed by the University of Sheffield1 . The module takes an evaluation
function (in our case the simulation), a list of parameter domains and the number of iterations as
input, along with some optional parameters for customization. The output of the module is the best
found parametrization and the corresponding objective value. Information such as the type of the
priority function (F/P) and the request data are directly passed to and handled by the simulation.
The BO and the simulation were implemented in Python 3.9 using GPyOpt 1.2.5 and Java 11,
respectively.
1
https://sheffieldml.github.io/GPyOpt/

13
5 Computational Study
In this section, we present our computational study. We first define instances and benchmark
policies. We compare the objective value of the policies and then analyze the impact of our policies
on decision making. Finally, we analyze the structure of the policies and the functionality of
Bayesian Optimization.

5.1 Instances
In the following, we describe our instances.

Fleet and Service Area.

We assume a 15km times 15km service area which is about the size of a medium-size city like
Braunschweig, Germany. We assume Euclidean distances between locations in the service area.
A fleet of 35 vehicles is assumed to operate for 10 hours, starting and ending their shift in a
central depot. Vehicles travel with a constant speed of 30km per hour. Service times for pickup
and drop-off are 2 minutes. Following ride-hailing provider MOIA, vehicles have a capacity of
five passengers and/or goods to transport (Due to the temporal restrictions, this capacity is never
reached in our experiments).

Demand.

We select demand volumes in a way that the vast majority of requests (> 80%) can be served, as
assumed to be realistic for this type of applications.
We set the expected number of requests to 1000 per day, equally distributed over the 10 hours.
Request either comprise transportation of one person or one good. Request locations are uniformly
distributed in the service area. The deadlines are set as the sum of direct travel time from pickup
to drop-off plus 15 minutes for a passenger transport and plus 60 minutes for goods.
We assume that passenger transportation is significant more lucrative as transportation of goods.
We model revenue dependent on travel distance. For passenger transportation, we assume 1.5
revenue units per kilometer. For transportation, we assume 0.2 revenue units per kilometer.
We generate five different ratios between passenger and good requests that allow analyzing both
the value of prioritizing vehicles for passenger transportation and the performance of Bayesian
Optimization. Therefore, the distributions become increasingly more complex:
1. Constant: In this setting, every hour 20% of requests are passenger requests.
2. Increase: In this setting, initially all requests are good-requests and every hour, the per-
centage of passenger requests increases by 10% until eventually all requests are passenger

14
 requests.
3. Decrease: Similar as Increase, however, the day starts with 100% of passenger requests and
then decreases by 10% per hour.
4. One Peak: One distinct peak of passenger transportation in the middle of the day. The
percentages of passenger transportation over the ten hours are 0%, 10%, 20%, 30%, 40%,
50%, 40%, 30%, 20%, 10%.
5. Two Peaks: In this setting, two (less distinct) peaks of passenger transportation are mod-
eled. More specific, the percentages over the ten hours are 10%, 30%, 30%, 40%, 50%,
30%, 20%, 30%, 50%, 20%.

5.2 Benchmark Heuristics

We compare our method to five benchmark policies divided into two sets. The first set is problem-
oriented to gain insights in the benefits of combining passenger transportation and (time-dependent)
priority of the fleet:

• Split: This policy splits the fleet with one part serving only passengers and one part only
transporting goods. The best percentage per instance setting is determined by means of
enumeration.

• Myopic: This policy assigns any feasible request to the vehicle that can serve it most time-
efficiently.

• Cost-Benefit: This policy follows the idea of Ulmer et al. (2018a) and aims on only accepts
transportation of goods, if the detour for service is below a specific time-threshold. The best
threshold per instance setting is determined by means of enumeration. We denote the policy
CB.

The second set is method-oriented to analyze the value of time-dependent priority percentages and
Bayesian Optimization.

• Fix: This policy uses a fixed priority percentage throughout the day. The best percentage per
instance setting is determined by means of enumeration in steps of 5%.

• Continuous Approximation: This policy is adapted from Ghiani et al. (2022) and fol-
lows the idea of finding the “right” priority percentage given a specific passenger-goods-
ratio in a time period (e.g., one hour). This is done by assuming a constant ratio (0%, 25%,
50%, 75%, 100%) for the entire day and finding the best Fix-policy for different ratios. Then,

15
 45
40
35
Improvement (in %)

30
25
20
15
10
5
0
TD (F) TD (P) TD (CA) Fix CB
Policy

Figure 2: Average improvement compared to the Split-policy (for the purpose of presentation
without Myopic (−105.0%)).

for the real instances, the expected ratio per two-hour slot is determined and the correspond-
ing Fix-policy is applied. Notably, this policy neglects interdependencies between different
hours of the day. We denote this policy TD(CA).

5.3 Solution Quality

Figure 2 shows the average improvement of the policies over the Split-policy. the x-axis depicts
the policies, the y-axis shows the improvement in percent. For the purpose of presentation, policy
Myopic was omitted from the presentation as the “improvement” was −105.0%, i.e. on average,
the lost revenue by Myopic was twice as high as for Split-policy. This is an important insight that
a combined service of passenger and good-transportation only works in case of careful assignment
strategies. We will analyze the reason for Myopic’s poor performance later in this section in more
detail.
All other policies outperform Split with values between 10% and 40%. So, there is general value
in combining both types of transportation. The time-dependent priority policies achieve substan-
tially higher average improvements compared to polices Fix with a fixed priority percentage. This
policy still outperforms the cost-benefit-policy CB though. From the time dependent policy, poli-
cies TD(F) and TD(P) optimized by Bayesian Optimization outperform the hand-crafted policy
TD(CA). The result indicate that prioritizing capacity for passenger transportation is very valu-
able, especially in case the priority is time-dependent. Further, since TD(F) and TD(P) outperform

16
 100
90
80
Service Rate (in %)

70
60
50
40
30
20
10 Passengers Goods
0
TD (F) TD (P) TD (CA) Fix CB Myopic Split
Policy

Figure 3: Average service rates for passengers and goods.

TD(CA), there is significant value in considering interdependencies in the priority percentages over
the time of the day.

5.4 Service Rates

Figure 3 shows the average service rates for passengers and goods over the different policies. the
x-axis depicts the policies, the y-axis shows the service rates in percent. The dark grey bars indicate
service rates for passengers, the light bars service rates for transportation of goods. We observe
that all policies serve the majority of requests. Policy Myopic is the only policy that transports
more goods than passenger, likely, because passenger requests have to be declined regularly since
all vehicles are busy transporting goods. Further, the policies that have been tuned have a higher
service rate for passenger transportation (about 90% to 95%) than for transportation of goods (about
65% to 85%). Further, the service rate for goods differ among the tunable policies. Policies Split
and CB show substantially poorer rates while especially the policies with time-dependent priorities
achieve service rates above 80%.
The result indicate that policies Split and CB sacrifice transportation of good-requests to serve
more passengers. This may result in additional revenue but leaves many customers unhappy. The
time-dependent priority policies are able to achieve equal passenger numbers while transporting
substantially more goods. Hence, there is no “cherry-picking” by the proposed TD-policies, i.e.,
rejecting transportation of goods-request to serve more passengers. Indeed, it is rather that the
main benefit of the policies is to serve equally numbers of passengers while accommodating many

17
more good-transports at the same time. Thus, besides increased revenue, the number of unhappy
customers is reduced as well. The superior performance has three main reasons. First, the time-
dependency of the priority percentage allows shifting resources between serving passengers and
goods and therefore transporting goods at times demand for passenger transportation is small.
Second, in contrast to a hard split between the fleets, the policies allow service of passengers
by all vehicles and in some cases, even transportation of goods by priority vehicles if it can be
done very efficiently. The third, more subtle reason for the increase in transportation of goods is
consolidation. By prioritizing a percentage of vehicles for passengers, the transportation of goods
is mainly done by a smaller set of vehicles. This increases consolidation. Indeed, about 25% of the
jobs are bundled with another job for the the priority-policies, but only 12% for Myopic and about
9% for CB. Not surprisingly, the bundling percentage for Split is even higher with 30% as a few
vehicles serve all the transportation of good-requests.

5.5 Method
In the following, we analyze the performance and structure of the tuned policies TD(F) and TD(P).
First, we show the learning process via Bayesian Optimization. Then, we analyze why (and when)
approximation Fourier-functions is superior to polynomials.

Learning.

Bayesian Optimization aims on finding a valuable parametrization-vector by carefully balancing

exploration and exploitation in the individual entries of the vector as we show in the following. One
exemplary learning development for TD(F) with degree 3 and distribution One Peak is depicted in
Figure 4. The x-axis shows the iterations, the y-axis the values. The dotted line indicate the lost
revenue value of the current iteration. The solid lines shows the best-found value in the current and
previous iterations.
When analyzing the best found solution, we observe a large improvement in the beginning and then
stepwise improvements until convergence - this behavior is quite common for learning algorithms.
Noticeably, the main convergence is reached within 100 iterations, a common observation in BO
(Frazier 2018). The occasional spikes in the individual iteration’s values are the result of the
algorithm exploring new areas of the vector space.

Parametrization.

We apply BO for functions with different numbers of parameters, i.e., for vectors of different
dimensions. With more parameters, the function space increases and therefore, better values might
be found. However, at the same time, the vector-space increases and finding good values becomes

18
 750
700 Value Best

650
600
Objective Value

550
500
450
400
350
300
0 20 40 60 80 100 120 140 160 180 200
Iterations

Figure 4: Individual value and best found value for TD(F) (degree 3) and distribution One Peak
over the Bayesian Optimization iterations.

more challenging. We illustrate this tradeoff in Figure 5. The x-axis shows the function’s degree
and the y-axis shows the average improvement of the policies over Split. The dark grey bars
represent the polynomial functions of degree 2, 3, and 4 with 3-, 4-, and 5-dimensional vectors
respectively. The light grey bars indicate the Fourier-functions of degree 2, 3, and 4 with 5-, 7-,
and 9-dimensional vectors.
We observe that every parametrization improves upon the Split-policy. For TD(P), the solution
quality decreases with increasing degree. Even though a higher degree includes all lower degree-
solutions, the additional degree does not add to an improvement, but seems to obstruct the learning
instead. Similar can be observed for TD(F). However, the best parametrization can be found with
a degree of 3.

Function Selection.

Our average results indicate that using Fourier-functions is advantageous compared to polynomi-
als. In general, Fourier-functions have the advantage that their values are restricted and that they
can capture local detail. In the following, we show that the latter becomes particularly important
in case the demand distributions become less “clean”. To this end, we analyse how the perfor-
mance between TD(P) and TD(F) varies with respect to the distribution. The results are shown
in Figure 6. The x-axis shows the increasingly complex demand distributions. The y-axis shows

19
 45
40
35
Improvement (in %)

30
25
20
15
10
5 TD(P) TD(F)
0
2 3 4
Degree

Figure 5: Average improvement for different degrees of TD(F) and TD(P).

the average improvement of TD(F) over TD(P). We observe that TD(F) outperforms TD(P) for
all distributions except Decrease. The results for Increase and Decrease are rather similar for both
strategies. Both distributions play to the favor of polynomial functions with clean and monotone
developments in the demand ratio.
The improvements for Constant, One Peak, and Two Peaks are significant though. The results
for the latter two distributions can be expected since they are comparably complex and therefore
require a more detailed priority function. We will show this for One Peak later in this section.
The result for Constant can be explained by the unrestricted nature of polynomial functions with
positive degree. However, for this instance setting, even the constant priority values of Fix achieves
similarly poor performances as TD(P). This indicates that a constant priority rate may not be ideal
even in case of constant demand ratio. This is linked to the dynamics of the problem, as we will
illustrate by analyzing the priority values in detail in the following.

Priority Values.

For analyzing the priority values, we select distribution One Peak as its demand ratio-development
with a clean peak in the middle of the day is more complex than linear developments but still
allows an interpretation. For analysis, we plot the priority values of the best parametrizations of
TD(F) and TD(P) over the service horizon in Figure 7. The x-axis shows the time in the horizon in
minutes. The y-axis shows the priority percentages for TD(F) (solid line) and TD(P) (dotted line).
We observe that both policies follow the general pattern of one major peak around time 300. How-

20
 14%
12%
Improvement TD(F) over TD(P)

10%
8%
6%
4%
2%
0%
-2% Constant Increase Decrease One Peak Two Peaks
-4%
Distribution

Figure 6: Average improvement of policy TD(F) over TD(P) for the five different distributions.

ever, there are differences in the details. The polynomial function essentially captures the devel-
opment of the demand-ratio without any deviation. For TD(F), we observe three main differences.
First, the priority ratio is initially near zero and stays below TD(P) in the first hours. Second,
the priority peak occurs slightly earlier than the passenger-demand peak. Third, the priority ratio
drops faster after the peak. The explanations are as follows. First, initially, all vehicles idle, thus
prioritization may be counterproductive as it prohibits efficient service. However, when resource-
demanding passenger requests increase, prioritization becomes important. Second, the slightly
earlier priority peak for TD(F) accounts for the fact that a service binds resources for a longer time
(Ulmer and Savelsbergh 2020). Thus, prioritizing vehicles earlier than passenger-demand occurs
ensures that the vehicle are available at time of the demand peak. The same logic explains the
third difference. As priority impacts the fleet’s future setup, it becomes less important when the
demand-ratio decreases again. Especially, in the last hour, reserving capacity for the future is not
beneficial.

6 Conclusion and Future Work

When combining mobility and transportation demand, using some vehicles with priority for mo-
bility demand can increase revenue and - in many cases - the number of served passengers and
transported goods. Varying the percentage of priority vehicles during the day can be very benefi-
cial, especially, when the ratio between mobility and transportation demand is volatile.
There are several avenues for future work, for both methodology and problem. Until now, we used

21
 1

0.8
Priority Percentage

0.6

0.4

0.2
TD (F) TD (P)
0
0 60 120 180 240 300 360 420 480 540 600
Time

Figure 7: Average priority percentages over time for policies TD(F), TD(P) and distribution One
Peak.

BO to freely search for a policy with time-dependent priority. In a next steps, it might be valuable
to combine BO with analytical considerations, for example, creating a promising initial solution
analytically and spanning the search space around it. Another step might be to make the percent-
ages not only dependent on time but also on other features, for example, the current workload
or the vehicle distribution in the city. For the problem, it might be interesting to analyze addi-
tional services, e.g., meal delivery or transportation of elderly. In that case, a single prioritization
becomes insufficient and additional measures might be considered.

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