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Acyclic Mechanism Design for Freight Consolidation

Wentao Zhang(wentao***at***usc.edu)
Nelson A. Uhan(uhan***at***usna.edu)
Maged Dessouky(maged***at***usc.edu)
Alejandro Toriello(atoriello***at***isye.gatech.edu)

Abstract: Freight consolidation is a logistics practice that improves the cost-effectiveness and efficiency of transportation operations, and also reduces energy consumption and carbon footprint. A "fair" shipping cost sharing scheme is indispensable to help establish and sustain the cooperation of a group of suppliers in freight consolidation. In this paper, we design a truthful acyclic mechanism to solve the cost-sharing problem in a freight consolidation system with one consolidation center and one common destination. Applying the acyclic mechanism, the consolidation center decides which suppliers' demands ship via the consolidation center and their corresponding cost shares based on their willingness to pay for the service. The proposed acyclic mechanism is designed based on bin packing solutions that are also strong Nash equilibria for a related non-cooperative game. We study the budget-balance of the mechanism both theoretically and numerically. We prove a 2-budget-balance guarantee for the mechanism in general and better budget-balance guarantees under specific problem settings. Empirical tests on budget-balance show that the mechanism only charges slightly more than the minimum shipping cost in practice. We also study the economic efficiency of our mechanism numerically to investigate its impact on social welfare under different conditions.

Keywords: freight consolidation, cost allocation, acyclic mechanism

Category 1: Applications -- OR and Management Sciences (Supply Chain Management )

Category 2: Applications -- OR and Management Sciences (Transportation )

Category 3: Other Topics (Game Theory )

Citation: Working paper, April 2018

Download: [PDF]

Entry Submitted: 05/01/2018
Entry Accepted: 05/02/2018
Entry Last Modified: 05/01/2018

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