Synergy-Based Bidding Method for Simultaneous Freight Transportation Auctions

Abstract

The tremendous use of the Internet has led freight transportation procurement websites to become an effective marketplaces that bring together several carriers and shippers. These websites enable transportation of goods in a more cost effective and safer way. From the carriers' point of view, this situation gives rise to the bid price determination problem in an auction based fast procurement process. Carriers place bids in multiple auctions simultaneously without knowing the lanes they win until the end of the auctions. This leads to uncertainty in the calculation of the lane bid price quotes at the beginning of the auctions. Kuyzu et al. (2015) proposed a stochastic bid price optimization model for addressing the uncertainty in simultaneous procurement auctions. However, their model is a non-concave maximization problem that requires historical data and solving an exponential number of NP-Hard optimization problems. In real-life situations, several auctions may need to be priced simultaneously. In this study, we propose a simpler approach so that the bid prices can be determined simultaneously with less computational effort. We develop an efficient synergy-based method to calculate a full truckload carrier's bid prices so that the carrier can compete with other carriers and win the tendered lanes in a profitable way. We validate the effectiveness of the synergy-based method through computational experiments involving simulations of a virtual transportation procurement auction marketplace.