A Comparative Study of Two Models for Handling Transportation Cost in Combinatorial Auctions

Abstract

Although combinatorial auctions have been extensively studied, the factor of transportation cost has not been considered in most studies. Without considering transportation cost, the profits of the seller cannot be determined accurately. The goals of this article are to propose models, develop a solution methodology for the winner determination problem (WDP) in combinatorial auctions and study the effects of transportation cost on the seller's profits. Two models are proposed: one model considers transportation cost in WDP whereas the other one does not take transportation cost into account in WDP but calculates the transportation cost based on the solution obtained. The author formulates the WDPs for these two models and proposes a solution method. The author then analyzes and compares the two models to illustrate the advantage of taking transportation cost into account in combinatorial auctions. Finally, the author studies the influence of transportation cost on combinatorial auctions by examples and demonstrate effectiveness of our approach.