Monotonic paths in game theory - Application, forest industry transportation

Abstract

In this paper, we focus on how cost allocation can be used as a means to create incentives for collaboration between companies, with the aim of reducing the overall operational cost. Collaboration is assumed to be preceded by a simultaneous invitation of the companies to collaborate with an initiating company. We make use of concepts from cooperative game theory and develop specific cost allocation mechanisms in order to introduce a solid base, a part of a business model, with potential to establish large collaborations among the companies. The cost allocation mechanisms are tested on a case that involves transportation planning activities at forestry companies. Although the case study is from a specific transportation sector, the findings in this paper can be adapted to collaborations in any type of transportation planning activity. Two of the cost allocation mechanisms ensure that any sequence of companies joining the collaboration represent a monotonic path, that is, any sequence of collaborating companies is such that the sequences of allocated costs are non-increasing for all companies.