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OR PRACTICE---An Economic Equilibrium Model of the Market for Marine Transportation Services in Petroleum Products

Author

Listed:
  • Murthy Mudrageda

    (1416 Berkshire Drive, Bensalem, Pennsylvania 19020)

  • Frederic H. Murphy

    (Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania 19122)

Abstract

We describe a model of the market for petroleum tank vessels used for planning by Maritrans, Inc. This model is an enhanced version of an earlier model and more closely approximates the market for transportation services. Because of the better representation, we found that the market, which is defined around an index for transportation services, has the potential for multiple equilibria. We present how the model has been used in making major decisions at Maritrans and show how the index design leads to an anomaly where demand could increase with increasing prices, leading to the potential for multiple equilibria. We have not observed this phenomenon in the market. However, with the advent of forward markets for transportation services, known as freight-forward markets, if multiple equilibria do appear, it could become profitable for a player to move a market from one equilibrium to another.

Suggested Citation

  • Murthy Mudrageda & Frederic H. Murphy, 2008. "OR PRACTICE---An Economic Equilibrium Model of the Market for Marine Transportation Services in Petroleum Products," Operations Research, INFORMS, vol. 56(2), pages 278-285, April.
    • Handle: RePEc:inm:oropre:v:56:y:2008:i:2:p:278-285
    DOI: 10.1287/opre.1070.0446
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    References listed on IDEAS

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    Cited by:

    1. Murphy, Frederic & Oliveira, Fernando S., 2010. "Developing a market-based approach to managing the US strategic petroleum reserve," European Journal of Operational Research, Elsevier, vol. 206(2), pages 488-495, October.
    2. Soyster, A.L. & Murphy, F.H., 2017. "Data driven matrix uncertainty for robust linear programming," Omega, Elsevier, vol. 70(C), pages 43-57.
    3. Yiting Xing & Ling Li & Zhuming Bi & Marzena Wilamowska‐Korsak & Li Zhang, 2013. "Operations Research (OR) in Service Industries: A Comprehensive Review," Systems Research and Behavioral Science, Wiley Blackwell, vol. 30(3), pages 300-353, May.
    4. Kumar, Sourabh & Kumar Barua, Mukesh, 2022. "Modeling and investigating the interaction among risk factors of the sustainable petroleum supply chain," Resources Policy, Elsevier, vol. 79(C).
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    6. John R. Birge & Ali Hortaçsu & J. Michael Pavlin, 2017. "Inverse Optimization for the Recovery of Market Structure from Market Outcomes: An Application to the MISO Electricity Market," Operations Research, INFORMS, vol. 65(4), pages 837-855, August.

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