On Service Capacity Pooling and Cost Sharing Among Independent Firms

We analyze the benefit of service capacity pooling for a set of independent firms. Firms have the choice of either operating their own service facilities or investing in a facility that is shared. Firms decide on capacity levels to minimize delay and capacity investment costs. If firms decide to operate a shared facility they must also decide on a scheme for sharing the cost of capacity and on priorities for capacity usage. We describe several settings where it is beneficial for firms to pool capacity and there is always a feasible cost sharing contract. We examine the impact of various factors, including the capacity selection process, service priorities, and cost parameters, on the benefit of capacity pooling.