Authors: Adam N. Elmachtoub , Goutam Kumar, Roger Lederman
Affiliation: Amazon.
Amazon Freight (AF) is a business unit at Amazon that moves freight for other
shippers using Amazon’s internal middle mile network. For this business, external shippers
use a website to request a price quote for an origin-destination pair, get prices instantly,
and decide which option to book. AF provides prices that varies across lead time options.
The execution costs and demand can vary widely across different quotes due to internal cost
structure and overall freight market. The goal for AF is to set prices for each quote in order
to maximize a business objective. Our solution utilizes a combination of parameteric and
non-parametric modeling with price optimization. We first use quote features to segment
the market into disjoint groups, employing the Market Segmentation Tree (MST) algorithm
which creates a binary tree based on differences in choice behavior. Within each leaf, we fit
a reference-price-effects Multinomial (MNL) choice model that is amenable to fast pricing
heuristics. We conducted live A/B experiments that shows our new framework significantly
improves profit, revenue, and accuracy. The model has been in production for about a year.