On-Demand Logistics Service for Packages: Package Bidding Mechanism vs. Platform Pricing

This paper is an exploratory analysis of an on-demand service platform for packages, where the packages bid for transportation service through various auction mechanisms, trucks offer transportation services, and distribution centers match demand and supply. All agents are independent and individually incentivized to participate. Using a utility-based model, we characterize the participation incentives for all the agents, implement the state-of-the-art pricing mechanisms from industry and academia, and design and implement a first-price auction-based mechanism. Using simulation and through performance indicators like throughput, profit of the distribution center, consumer surplus, among others, we find that the package bidding mechanism significantly outperforms the status quo. Furthermore, we extend our analysis to include uniform price and Vickrey-Clarke-Groves auctions. We find that the packages prefer the Vickrey-Clarke-Groves auction, whereas the trucks and distribution centers prefer the first-price auction; although all of them prefer the bidding mechanism to the status-quo pricing mechanism.