Cost Allocation and Cooperative Game Theory

Appropriate cost allocation is a challenge for postal operators and regulators. In many cases, postal operators are multiproduct firms that have high common costs. Their production functions are characterized by the existence of economies of scale and scope. Some postal operators are in charge of the USO and/or other SGEIs. The scope of the regulatory accounting system covers all activities that are used for the provision of the SGEI, in particular when those activities include products/services that fall outside of the SGEI. Therefore, the allocation of costs is complex. The ABC methodology is used as the common accounting approach for regulatory accounts. This accounting method permits a good allocation of direct and join costs, but is unable to measure accurately common costs. In this regard, cooperative game theory can be a useful tool to generate an accurate cost allocation between various activities using the same infrastructure. In this article, we focus on a specific infrastructure: the post office network used to sell several products or services (mail, parcels, financial services, and so on). In order to give incentive to all activities to share this common retail network, its cost should be spread across the activities with an efficient and accurate method in a way that no subset of activities has an incentive to stand alone.