Capacity Sharing and Cost Allocation among Independent Firms

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  • Date/Time:
    • Monday October 26, 2009
      11:00 am - 12:00 pm
  • Location: Executive classroom
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Summary Sentence: Capacity Sharing and Cost Allocation among Independent Firms

Full Summary: Capacity Sharing and Cost Allocation among Independent Firms in the Presence of Congestion

TITLE: Capacity Sharing and Cost Allocation among Independent Firms in the Presence of Congestion

SPEAKER: Professor Saif Benjaafar


The sharing of production/service capacity among independent firms is increasingly common in industry. Capacity sharing allows firms to hedge against demand uncertainty and to achieve economies of scale. The benefits are in the form of lower costs, improved service quality, or both. Capacity sharing among independent firms raises several important questions. Is capacity sharing always beneficial to all firms? Does it always lead to a reduction in total capacity in the system? How should capacity costs be allocated among the different firms? Is capacity sharing among all the firms the best arrangement or would sharing among smaller subsets of the firms be more beneficial to particular firms? Can capacity sharing be beneficial when firms do not report truthfully private information? Is it possible to induce firms, via cost allocation alone, to disclose truthfully their private information? In this talk, we address these and other related questions in settings where production/service facilities can be modeled as queueing systems. Firms decide on capacity levels to minimize delay costs and capacity investment costs subject to service level constraints. We formulate the problem as a cooperative game among independent agents, in which is embedded a non-cooperative information reporting game. We identify various settings where the core of the game is non-empty (no subsets of firms prefer seceding from the grand coalition) and show that it is possible to design a cost allocation rule that is not only in the core but also guarantees truth telling with truth telling being a do dominant strategy. (This work is joint with Yimin Yu, University of Minnesota, and Yigal Gerchak, Tel Aviv University)

Saif Benjaafar is a Professor of Industrial & Systems Engineering at the University of Minnesota where he is also Director of the Industrial & Systems Engineering Program, Director of the Center for Supply Chain Research, and a Faculty Scholar with the Center for Transportation Studies. He was a Distinguished Senior Visiting Scientist at Honeywell Laboratories and a Visiting Professor at universities in France, Belgium, Hong Kong, China and Singapore. He Holds PhD and MS degrees from Purdue University and a BS degree from the University of Texas at Austin. His research is in the areas of supply chain management, service and manufacturing operations, production and inventory systems, with a current focus on sustainability and environmental modeling. He is on the editorial board of several journals including MSOM, POM, NRL, and IIE. His papers have been published in various journals including Management Science, Operations Research, and MSOM. His research has been funded by several government agencies, including NSF, DARPA, Air Force, and DOT, and industry such as Honeywell, General Mills, and 3M, among many others. He is a Fellow of the Institute of Industrial Engineers (IIE). More information can be found on his website:

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H. Milton Stewart School of Industrial and Systems Engineering (ISYE)

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  • Created On: Feb 16, 2010 - 9:48am
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