2011 MSOM Annual Conference Ann Arbor, Michigan, June 26-28, 2011

Cooperative Production and Queueing Games

Shoshana Anily
Tel Aviv University

Hebrew University of Jerusalem

Moshe Haviv

Cooperative production and queueing games Shoshana Anily 1 and Moshe Haviv2 Extended Abstract
Many production and service systems may benet from collaboration if economies of scope prevail. This phenomenon is well known in supply chain management, where retailers cooperate in order to save shipment costs, and manufacturers coordinate in order to save setup and holding costs. In general, cooperation and coordination enable a better exploitation of the systems resources, which in turn reduces the total cost. Once the operational policy is determined, the next natural question refers to the allocation of the total cost among the various parties in the supply chain. The answer to this question is important for cost accounting purposes and for enabling the management to decide on the protability of the various entities in the supply chain. In addition, designing fair cost allocations in managerial systems is important in order to guarantee stability over time. The literature on pooling of servers is quite extensive, due to the economies of scope which exists in such systems, leading to various types of cooperation among servers. See [1] and the references therein. However, modeling such pooling as a cooperative game with transferable utility, let alone using results from this eld regarding cost allocation, is quite limited. An exception is [6] where a model in which service capacity comes with a linear cost of its rate, and the service providers need then to share the cost of the optimal pooled rate among themselves, is considered. The authors propose a fair allocation in the core. Another recent exception is [2], which seems to be the simplest (but most revealing) possible model of cooperation in service systems. The paper considers a number M/M/1 service systems. The pooling of servers in any coalition results in a single combined M/M/1 server whose service (arrival) rate is the sum of the service (arrival) rates of its servers (customers). The characteristic function of this model represents the steady-state congestion in the pooled system. The paper investigates the resulting transferable utility cooperative game, and in particular, it proves that despite the fact that the characteristic function is neither monotone nor concave, the game and its subgames possess non-empty cores. The authors give an explicit expression for all non-negative core cost allocations, and they show that except for the case where all individual servers have the
Faculty of Management, Tel Aviv University, Tel Aviv 69978, Israel. E-mail: anily@post.tau.ac.il 2 Department of Statistics, Hebrew University of Jerusalem, 91905 Jerusalem, Israel. E-mail: moshe.haviv@gmail.com.
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same cost, there exist innitely many core allocations with negative entries. Here we deal with more realistic forms of cooperation among servers. We consider two cooperation models among a number of M/M/1 systems, where in both models each server keeps its own identity. For each model we dene a cooperative game with transferrable utilities, and we show that the corresponding characteristic function is sub-additive, meaning that the grand coalition is the natural outcome of any bargaining process. Then we consider the question of how to fairly allocate the cost of the grand coalition among the players. Similarly to [2], we focus on the core of the games. The literature identies just two types of games that are known to possess a non-empty core: concave games and market games (see [5]). The games considered here are neither concave nor market games. Fortunately, we were able to identify a new general condition that together with sub-additivity, guarantees the non-emptiness of the core. The condition can be applied on what we call regular games, games with a characteristic function value that depends only on the size of the coalition and some quantitative properties of its members, and is otherwise independent of the members identity. Market games and numerous games in supply chains and other domains are regular. We dene a cooperative regular game with transferable utility to be homogeneous of degree one if for any integer m, the value of cloning m times all players at any given coalition, leads to m times the value of the original coalition. Homogeneity of degree one means that when identical sets of players cooperate, they produce just the total of what they would have done separately. This in fact means lack of economies of scale. Note that sub-additivity means that gains due to cooperation are possible. This coupled with homogeneity of degree one means that in order to get strict improvement due to cooperation, the cooperating sets should be dierent. Theorem 1 The core of any cooperative regular game with transferrable utilities whose characteristic function is sub-additive and homogenous of degree one - is nonempty, and the respective game is totally balanced. The theorem is general and can be applied on regular games in any domain. We apply it on two cooperation models among servers of M/M/1 systems as described below: In the rst model, the central planner may reroute the union of the streams of customers among the servers, and she may also choose to outsource some (or all) of the customers to an external service provider at a constant cost per unit rate outsourced, where her objective is to minimize the steady-state congestion cost plus outsourcing cost. Depending on the outsourcing cost, the optimal solution to such a system is either to 2

outsource all customers, or some of them or none. This setting ts the case where there is only one type of service provided by all servers. The seminal paper [3], published in 1983 in Management Science, considers this type of cooperation among the servers without the option of outsourcing, where the objective is to minimize the steady-state congestion in the system (or, equivalently, minimizing the overall mean waiting time) by routing the total ow of arrivals in a way that may dier from its original form. The paper shows that under optimal routing not all servers are necessarily open, and more specically, the set of open servers consists of a subset of fastest servers. For this model we dene a cooperative game whose set of players consists of the set of servers, and the characteristic function value for any given coalition of servers represents the optimal cost of a policy that re-routes the customers of this coalition among the servers of the coalition, where possibly outsourcing some of them. This game is regular, the characteristic function is sub-additive and we prove that it is homogenous of degree 1. Theorem 2 For any outsourcing cost, the cooperative game of re-routing customers is balanced. The second model is similar to the rst, but with one key distinction: Now servers who cooperate share among themselves the total joint capacity while each server maintains his original arrival rate that he has to serve. That means that the servers continue to work individually. Now customers of dierent lines require dierent service types, implying that customers of a certain line cannot switch to another line. The servers, on the other hand, are capable to perform all service types at their given capacity, so that each server can allocate its capacity among all tasks. The servers of any coalition have also the option to rent some of their capacity at a constant price per unit rate. Here, of course, it is impossible to shut some of the servers, neither it is possible to rent the whole capacity as the customers of each server must be served by their server. [4] considers the problem of minimizing the steady-state congestion without the option of selling capacity, and solves for the optimal capacity that should be allocated to each server. Also for this model we dene a cooperative game whose set of players consists of the set of servers, and the characteristic function value for any given coalition represents the optimal net cost of a feasible policy that re-allocates the servers capacities among the servers while enabling rental some of the capacity to an external user. This game is regular, the characteristic function is sub-additive and is also homogenous of degree 1. Thus, Theorem 3 For any capacity selling cost, the cooperative game of re-allocating the servers capacities is balanced. 3

References
[1] Allon, G. and A. Federgruen (2007), Competition in service industries,Operations Research, Vol. 55, pp. 37-55. [2] Anily, S. and M. Haviv (2010), Cooperation in service systems,Operations Research, Vol. 58, pp. 660-673. [3] Bell, C.H. and S. Stidham, Jr. (1983), Individual versus social optimization in allocation of customers to alternative servers, Management Science, Vol. 29, pp. 831-839. [4] Kelly, F.P. (1989) Reversibility and Stochastic Networks, 2nd Edition, John Wiley and Sons, Chichester. [5] Osborne, M.J. and A. Rubinstein (1994),A course in game theory, The MIT Press. [6] Yu, Y., S. Benjaafar and Y. Gerchak (2006),Capacity sharing and cost allocation among independent rms in the presence of congestion, Working Paper, Department of Mechanical Engineering, University of Minnesota. Revised (2009).