Game-theoretic Analysis of Air-cargo Allotment Contract

Kannapha Amaruchkul

2018

Abstract

Consider an air-cargo carrier and a freight forwarder, which may establish an allotment contract at the start of the season. The allotment size needs to be determined, before their stochastic demands materialize. The forwarder hopes to receive a discount rate, lower than the spot rate. The carrier hopes to increase capacity utilization by handling not only its own direct-ship demand but also the forwarder's demand. We formulate a Stackelberg game, in which the carrier is the leader and offers contract parameters such as the wholesale price and the refund rate for the unused allotment as well as the minimum allotment utilization. Given the carrier's offer, the forwarder decides how much to book as an allotment, in order to maximize its own expected profit. We analyze the game and identify conditions, in which an equilibrium contract coordinates the air-cargo chain. We show that the minimum allotment utilization is needed to construct a coordinating contract. In our numerical examples, we illustrate how to apply our approach to the case study of one of the biggest forwarders in Thailand. The contract can improve both parties' profits, compared to the scenario without any contract, where the forwarder purchases all capacity from the spot market.

Paper Citation

in Harvard Style

Amaruchkul K. (2018). Game-theoretic Analysis of Air-cargo Allotment Contract.In Proceedings of the 7th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES, ISBN 978-989-758-285-1, pages 47-58. DOI: 10.5220/0006551800470058

in Bibtex Style

@conference{icores18,
author={Kannapha Amaruchkul},
title={Game-theoretic Analysis of Air-cargo Allotment Contract},
booktitle={Proceedings of the 7th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,},
year={2018},
pages={47-58},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0006551800470058},
isbn={978-989-758-285-1},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 7th International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,
TI - Game-theoretic Analysis of Air-cargo Allotment Contract
SN - 978-989-758-285-1
AU - Amaruchkul K.
PY - 2018
SP - 47
EP - 58
DO - 10.5220/0006551800470058