Munich Personal RePEc Archive

Resource Exchange Seller Alliances

Chun, So Yeon and Kleywegt, Anton and Shapiro, Alexander (2013): Resource Exchange Seller Alliances.

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Abstract

Many carriers, such as airlines and ocean carriers, collaborate through the formation of alliances. The detailed alliance design is clearly important for both the stability of the alliance and profitability of the alliance members. This work is motivated by a real-life liner shipping "resource exchange alliance" agreement design. We provide an economic motivation for interest in resource exchange alliances and propose a model and method to design a resource exchange alliance. The model takes into account how the alliance members compete after a resource exchange by selling substitutable products and thus enables us to obtain insight into the effect of capacity and the intensity of competition on the extent to which an alliance can provide greater profit than when in the setting without an alliance. The problem of determining the optimal amounts of resources to exchange is formulated as a stochastic mathematical program with equilibrium constraints (SMPECs). We show how to determine whether there exists a unique equilibrium after resource exchange, how to compute the equilibrium, and how to compute the optimal resource exchange. SMPEC problem, which is generally very difficult to solve, is well-posed in the paper, and robust results can be obtained with a reasonable amount of computational effort.

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