Acyclic Mechanism Design for Freight Consolidation

Wentao Zhang (), Nelson A. Uhan (), Maged Dessouky () and Alejandro Toriello ()
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Wentao Zhang: Daniel J. Epstein Department of Industrial and Systems Engineering, University of Southern California, Los Angeles, California 90089
Nelson A. Uhan: Mathematics Department, United States Naval Academy, Annapolis, Maryland 21402
Maged Dessouky: Daniel J. Epstein Department of Industrial and Systems Engineering, University of Southern California, Los Angeles, California 90089
Alejandro Toriello: H. Milton Stewart School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332

Transportation Science, 2022, vol. 56, issue 3, 571-584

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 noncooperative 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 our mechanism performs much better than the guaranteed budget-balance ratio. 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; bin packing; game theory (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ortrsc:v:56:y:2022:i:3:p:571-584

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