Big Is Green, Procompetitive, and Profitable: The Economics of Route Consolidation

The Travelling Salesman Problem and its cousin, the Vehicle Routing Problem, are typically studied in the field of Operations as a problem of optimization. In this paper, we show how to generalize the framework to handle any economic optimization problem using the idea of opportunity cost to elicit preferences. We prove that an optimum exists and then use stochastic search to estimate it for a realistic application involving actual drive times, multiple drivers, and overtime in Austin Texas. We find the benefits of route consolidation are large enough to offset potential anticompetitive effects for reasonable demand elasticities, and that the reduction in delivery miles results in lower costs, less pollution, and fewer accidents, injuries, and deaths. But unlike classic pollution externalities, most of benefits of route consolidation are internal to the merging parties, so they would be realized absent government intervention.