Last-mile Collaboration: A Decentralized Mechanism with Performance Guarantees and its Implementation

The last-mile urban freight market is characterised by soaring fragmentation, fierce competition and low profit margin. Horizontal collaboration could enable operators to exchange customers and coordinate routes, resulting in reduced costs and higher level of service. Previous research has focused on combinatorial auctions and scalable mechanisms are still limited. In this work, we propose an Iterative, Decentralized, and Auction-based Mechanism (IDAM) which is individually rational and budget balanced. It parallelizes several independent local auctions but still guarantees a bounded performance. When considering its best-case performance, IDAM could be as efficient as the centralized optimization while the worst-case performance depends on the fleet capacity and spatial distribution of customers. A case study of the Inner London Area, involving 50 companies and 1000 customers, showed that our approach achieves up to 76% cost savings.