Network Design and Allocation Mechanisms for Carrier Alliances in Liner Shipping

Authors:
Richa Agarwal;Özlem Ergun
Affiliations:
School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332;School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332
Venue:
Operations Research
Year:
2010

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Abstract

Many real-world systems operate in a decentralized manner, where individual operators interact with varying degrees of cooperation and self motive. In this paper, we study transportation networks that operate as an alliance among different carriers. In particular, we study alliance formation among carriers in liner shipping. We address tactical problems such as the design of large-scale networks (that result from integrating the service networks of different carriers in an alliance) and operational problems such as the allocation of limited capacity on a transportation network among the carriers in the alliance. We utilize concepts from mathematical programming and game theory and design a mechanism to guide the carriers in an alliance to pursue an optimal collaborative strategy. The mechanism provides side payments to the carriers, as an added incentive, to motivate them to act in the best interest of the alliance while maximizing their own profits. Our computational results suggest that the mechanism can be used to help carriers form sustainable alliances.