A Game Theoretical Pricing Scheme to Allocate the Cost of Empty Railcars to Participating Rail Companies

University Of Arizona, Tucson AZ

Investigators

Abstract

The railroad industry played an important role in industrialization in the nineteenth century. The industry is characterized by high fixed costs but relatively low variable costs. Today, with the increased level of congestion on national highways and the rapid development in automation and computerization, the potential of the railroad industry is growing again in the service sector of the United States economy. While research on railcar management, such as minimization of the total empty car miles, is very extensive, allocation of the cost incurred from empty miles to a loaded trip, which is an important pricing problem in freight transportation, has not received adequate attention. The existing cost distribution schemes to allocate empty miles to loaded trips do not seem to explicitly take into account the gain and loss incurred in cooperation and, as a result, do not ensure the fairness in all situations. With the rapid development in information technologies in recent years, cooperation at various levels has already become a key factor to success for many service sectors. The objective of this research is to develop a cost-allocation scheme of empty car movements for a large-scale network with many participants. In specific, the cost-allocation scheme to be developed will reflect the level of participation in cooperation, the costs generated before and after cooperation, and the benefits obtained by each participant due to cooperation. The specific research approach adopted in this study is based on game theory. We will also incorporate the network flow theory of vehicular traffic into the study to characterize the costs incurred at various level of cooperation participated by a subset of participants. The advantage and disadvantage of the proposed pricing scheme will be studied under different operation settings, strategies and objectives. Though the proposed research is conducted in the context of the railroad industry, the cost-allocation scheme developed in this study can be applied, with some modifications, to other service sectors such as commercial fleet management, supply chains, and public transportation systems with timed-transfer between different modes.