When Friends Become Competitors: The Design of Resource Exchange Alliances

Many carriers, such as airlines and ocean carriers, collaborate through the formation of alliances. The rules of alliances are important for both the stability of the alliance and the profitability of the alliance members. In this paper, we address the design of resource exchange alliances, a type o...

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Bibliographic Details
Published in:Management science Vol. 63; no. 7; pp. 2127 - 2145
Main Authors: Chun, So Yeon, Kleywegt, Anton J., Shapiro, Alexander
Format: Journal Article
Language:English
Published: Linthicum INFORMS 01.07.2017
Institute for Operations Research and the Management Sciences
Subjects:
Air travel
alliance
Alliances
Competition
Competitors
Friendship
Mathematical optimization
Methods
noncooperative game
Oceans
pricing
Profitability
Profits
Resource allocation
resource exchange
Revenue management
Rules
Stochastic analysis
stochastic mathematical programming with equilibrium constraints
Strategic alliances (Business)
ISSN:0025-1909, 1526-5501
Online Access:Get full text
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Summary:Many carriers, such as airlines and ocean carriers, collaborate through the formation of alliances. The rules of alliances are important for both the stability of the alliance and the profitability of the alliance members. In this paper, we address the design of resource exchange alliances, a type of alliance agreement widely used in practice, especially in the ocean cargo industry. Resource exchange alliances often increase competition among alliance members since the members can sell substitutable products after the exchange. We propose a resource exchange model that takes into account the resulting competition and alliance profit allocation among alliance members. The problem of determining the optimal amounts of resources to exchange is formulated as a stochastic mathematical program with equilibrium constraints (MPECs). Although MPEC problems are, in general, very difficult to solve, we successfully demonstrate an efficient solution approach and provide valuable insights for the resource exchange design problem. In particular, we show that the resource exchange alliance we propose can induce greater profit for the alliance members (both total and individual profits) even though it leads to greater competition. This paper was accepted by Yinyu Ye, optimization .
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ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2016.2434