A cost allocation problem arising in hub-spoke network systems [An article from: European Journal of Operational Research]

This digital document is a journal article from European Journal of Operational Research, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper studies a cost allocation problem arising from hub-spoke network systems. When a large-scale network is to be constructed jointly by several agents, both the optimal network design and the fair allocation of its cost are essential issues. We formulate this problem as a cooperative game and analyze the core allocation, which is a widely used solution concept. The core of this game is not necessarily non-empty as shown by an example. A reasonable scheme is to allocate the cost proportional to the flow that an agent generates. We show that, if the demand across the system has a block structure and the fixed cost is high, this cost allocation scheme belongs to the core. Numerical experiments are given with real telecommunication traffic data in order to illustrate the usefulness of our analytical findings.