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Price and frequency competition in freight transportation

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  • Shah, Nilopa
  • Brueckner, Jan K.

Abstract

This paper develops a simple analytical model of price and frequency competition among freight carriers. In the model, the full price faced by a shipper (a goods producer) includes the actual shipping price plus an inventory holding cost, which is inversely proportional to the frequency of shipments offered by the freight carrier. Taking brand loyalty on the part of shippers into account, competing freight carriers maximize profit by setting prices, frequencies and vehicle carrying capacities. Assuming tractable functional forms, long- and short-run comparative-static results are derived to show how the choice variables are affected by the model’s parameters. The paper also provides an efficiency analysis, comparing the equilibrium to the social optimum, and it attempts to explain the phenomenon of excess capacity in the freight industry.

Suggested Citation

  • Shah, Nilopa & Brueckner, Jan K., 2012. "Price and frequency competition in freight transportation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(6), pages 938-953.
  • Handle: RePEc:eee:transa:v:46:y:2012:i:6:p:938-953 DOI: 10.1016/j.tra.2012.02.014
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    References listed on IDEAS

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    1. Minner, Stefan, 2003. "Multiple-supplier inventory models in supply chain management: A review," International Journal of Production Economics, Elsevier, vol. 81(1), pages 265-279, January.
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    Cited by:

    1. repec:eee:transb:v:104:y:2017:i:c:p:337-356 is not listed on IDEAS
    2. Brueckner, Jan K. & Luo, Dan, 2014. "Measuring strategic firm interaction in product-quality choices: The case of airline flight frequency," Economics of Transportation, Elsevier, vol. 3(1), pages 102-115.
    3. Abate, Megersa & de Jong, Gerard, 2014. "The optimal shipment size and truck size choice – The allocation of trucks across hauls," Transportation Research Part A: Policy and Practice, Elsevier, vol. 59(C), pages 262-277.
    4. Mesa-Arango, Rodrigo & Ukkusuri, Satish V., 2014. "Attributes driving the selection of trucking services and the quantification of the shipper’s willingness to pay," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 71(C), pages 142-158.
    5. Lakew, Paulos Ashebir, 2014. "Economies of traffic density and scale in the integrated air cargo industry: The cost structures of FedEx Express and UPS Airlines," Journal of Air Transport Management, Elsevier, vol. 35(C), pages 29-38.

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