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The competition game on hub network design

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  • Lin, Cheng-Chang
  • Lee, Shwu-Chiou

Abstract

In a competitive market, carriers in network industries design their hub networks and operations plans to maximize their respective profits. The long-term Cournot-Nash equilibrium steady state requires that none of the carriers may unilaterally alternate their hub networks or operations plans to increase profits. We study an integral-constrained game theoretic model for time-definite less-than-truckload freight services in an oligopolistic market. The research showed that carriers favor geographic central than outlying hub locations. With price-elastic demand in the freight market, the higher the network density is, the higher the profit is. Thus, the stable Cournot-Nash equilibrium solution states that all carriers respectively possess a similarly dense hub network, which is robust even with uneven changes in carrier cost structures. However, there is a prorogation effect in that an operating cost reduction will increase the individual carrier's and also the competitors' profits. The results also showed that there are cooperative equilibria that can make all carriers better off, but are unstable solutions in the non-cooperative game.

Suggested Citation

  • Lin, Cheng-Chang & Lee, Shwu-Chiou, 2010. "The competition game on hub network design," Transportation Research Part B: Methodological, Elsevier, vol. 44(4), pages 618-629, May.
    • Handle: RePEc:eee:transb:v:44:y:2010:i:4:p:618-629
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    16. SteadieSeifi, M. & Dellaert, N.P. & Nuijten, W. & Van Woensel, T. & Raoufi, R., 2014. "Multimodal freight transportation planning: A literature review," European Journal of Operational Research, Elsevier, vol. 233(1), pages 1-15.

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