A Game-Theoretic Approach to the Freight Transportation Pricing Problem in the Presence of Intermodal Service Providers in a Competitive Market

This article studies a competitive freight transportation pricing problem in the presence of two Intermodal Service Providers (ISPs) and a Direct Transportation System (DTS). The ISPs apply both rail and road transportation modes to carry the demands of a network of customers. The DTS uses only roads to carry the demands, without any transhipment at a distribution center. Each customer chooses its best transportation service based on the prices offered by the ISPs and the expenses of using the DTS. The ISPs determine their prices to maximize their profits, considering the customers' choice behaviour. In order to determine the equilibrium decisions, a non-cooperative game-theoretic approach based on Stackelberg leader-follower competition is applied. Mixed-integer linear programming models are proposed to formulate this competition. A real-life case study is also conducted to demonstrate the validity of the models. We find that a barrier pricing strategy from the leader to deter the entrance of the follower ISP is not recommended for both of them because it may even lead to a negative value of profits for the leader. Finally, some sustainability objectives of the government, as the strategic decision maker, are examined. The results could help the government assess the effects of its policies on the transportation market, the environment, and the society.

Automated summary

This article studies a competitive pricing problem in the presence of two ISPs and a DTS, where customers choose the best transportation service based on prices and expenses. A game-theoretic approach and mixed-integer linear programming models are used to formulate competition strategies. A case study demonstrates that setting price barriers between ISPs is not recommended.