Stepwise pricing in evaluating revenue efficiency in Data Envelopment Analysis: A case study in power plants

Document Type: Article

Authors

1 Department of Mathematics, Qazvin Branch, Islamic Azad University, Qazvin, Iran

2 Department of Mathematics, Rasht Branch, Islamic Azad University, Gilan, Iran

3 Department of Mathematics, Science and Research Branch, Islamic Azad University, Tehran, Iran.

4 Faculty of Business, Sohar University, Sohar, Oman, P. O. Box: 44

Abstract

Data envelopment analysis (DEA) technique is widely applied for performance assessment of decision making units (DMUs). The revenue efficiency (RE) evaluation is one of the controversial subject matters that can be performed through DEA context. The amount of productions and its prices are crucial factors in the RE. The classical DEA models consider the prices to be fixed and known which are not the case in real world. Also, the classical DEA models considers linear pricing in revenue assessment. However, most of real world problems deal with nonlinear prices. This paper evaluates the RE given the piecewise linear theory in non-competitive situations. In doing so, a stepwise pricing function is introduced which lets the prices to be changed in relation to the amount of the production. As an innovative idea, a more accurate mathematical modeling for the RE is proposed. We define a dynamic weights’ function in maximum revenue optimization model which no longer considers fixed prices. A case study validates our proposed model.

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