Capacity Pooling and Cost Sharing among Independent Firms in the Presence of Congestion

Abstract

We analyze the benet of production/service capacity pooling for a set of independent rms. 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 nite service rates. Firms decide on capacity levels (the service rate) to minimize delay costs and capacity investment costs subject to service level constraints. If rms decide to operate a shared facility they must also decide on a scheme for sharing the costs. We formulate the problem as a cooperative game and identify a cost allocation that is in the core. The allocation rule charges every rm the cost of capacity for which it is directly responsible, its own delay cost, and a fraction of buer capacity cost that is consistent with its contribution to this cost. In settings where we relax some assumptions in our original problem, we show that capacity pooling may not always be benecial. We also examine the impact of having one of the rms, instead of a neutral central decision maker, be responsible for making the capacity investment decision for the pooled system.

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