Assessing second‐price auctions for parcel exchanges in last‐mile logistics

Abstract

The rapid growth of e‐commerce has led to multiple carriers operating in the same regions, creating opportunities for collaboration. However, logistics companies typically operate independently, leading to inefficiencies. Horizontal cooperation, where carriers share resources and infrastructure, can improve efficiency and reduce costs. This study explores the requirements for a parcel exchange framework through a game‐theoretic lens. We focus on auction‐based mechanisms to facilitate horizontal cooperation, optimize exchanges, and minimize delivery costs and emissions. Our approach prioritizes ensuring that carriers report accurate marginal delivery costs while maintaining business privacy. First, we define the key properties of an exchange mechanism for redistributing parcels among carriers. Our analysis reveals a conflict between incentive compatibility and budget balance when non‐free disposal is enforced. Among the mechanisms considered, the Vickrey–Clarke–Groves (VCG) mechanism is the most suitable, though it tends to overpay carriers. The rationale for using VCG is that we consider incentive compatibility and allocation of all parcels more important than budget balance to ensure long‐term participation of carriers and delivery fulfillment. In a computational study, we analyze a VCG‐based parcel exchange under realistic settings. The experiment considers several parcel carriers within a region with heterogeneous market shares. In the simulated auctions, carriers compute marginal costs for the parcels, and the winner determination problem is solved via a linear program. A random parcel assignment serves as proxy for noncooperative behavior. The results demonstrate that second‐price premium reward payments are typically moderate and that second‐price compensation for allocated parcels remains superior to noncooperative last‐mile parcel logistics.