Designing Mechanisms for the Management of Carrier Alliances

Authors:
Lori Houghtalen;Özlem Ergun;Joel Sokol
Affiliations:
-;H. Milton Stewart School of Industrial and Systems Engineering, Georgia Institute of Technology 30332;H. Milton Stewart School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332
Venue:
Transportation Science
Year:
2011

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Abstract

When cargo carriers form an alliance, sharing network capacity in order to improve profitability, a key issue is how to provide incentive for carriers to make decisions that are optimal for the alliance as a whole. We propose a mechanism that allocates both alliance resources and profits by appropriately setting resource prices. Clearly, it is important to understand the impact of these prices on the behavior of an individual carrier. We analyze the performance of our mechanism using a modeling approach that makes use of realistic control parameters, investigating theoretical and practical properties of profit allocations obtained. Experimental results confirm that our proposed mechanism is robust with respect to variability in alliance composition and cargo demand, yielding solutions that retain a high proportion of optimal profit and achieve a stable distribution of revenue across members of the alliance. We also study an alternative modeling approach in which we assume that each carrier can make load selection decisions for other carriers. We find that changing assumptions about the degree of carrier control can significantly impact the feasibility of routing decisions made by individual carriers when operating under our mechanism, as well as the properties of the profit allocations.