Performance analysis of auction-based allocation mechanisms for cooperation of manufacturers on production capacity

Abstract

We present a queuing model to analyze the effects of cooperation of independent producers on production capacity. Producers have limited capacity and have access to subcontractors at a higher cost. When producers agree to cooperate, Arriving orders are allocated based on the producers' cost structures and their current loads to meet the due date of the orders. Both single-unit auctions where the arriving order is allocated to one of the producers and also multi-unit auctions where the order is split among the producers are incorporated into Continuous-Time Markov Chain models. these two allocation mechanisms are compared with independent operation of producers without cooperation and also with the centralized operation of producers. Numerical experiments show that a decentralized allocation mechanism that is based on a Vickrey option yields the same average profits for the producers as the centralized operation.