Capacity Sharing and Cost Allocation among Independent Firms with Congestion

Yimin Yu, Saif Benjaafar, Yigal Gerchak

Research output: Contribution to journalArticlepeer-review

36 Scopus citations

Abstract

We analyze the benefit of production/service capacity sharing for a set of independent firms. Firms have the choice of either operating their own production/service facilities or investing in a facility that is shared. Facilities are modeled as queueing systems with finite service rates. Firms decide on capacity levels (the service rate) to minimize delay costs and capacity investment costs possibly subject to service-level constraints on delay. If firms decide to operate a shared facility they must also decide on a scheme for sharing the capacity cost. We formulate the problem as a cooperative game and identify settings under which capacity sharing is beneficial and there is a cost allocation that is in the core under either the first-come, first-served policy or an optimal priority policy. We show that capacity sharing may not be beneficial in settings where firms have heterogeneous work contents and service variabilities. In such cases, we specify conditions under which capacity sharing may still be beneficial for a subset of the firms.

Original languageEnglish (US)
Pages (from-to)1285-1310
Number of pages26
JournalProduction and Operations Management
Volume24
Issue number8
DOIs
StatePublished - Aug 1 2015

Keywords

  • capacity sharing
  • cooperative game theory
  • cost allocation
  • joint ventures
  • queueing systems

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