When and how to share first-mile parcel collection service

Xin Wang, George Q. Huang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

13 Citations (Scopus)

Abstract

Booming parcel shipping business has raised wide attention. The trunk line is easier to manage, since parcels are consolidated to fully utilize vehicle capacities. However, the first mile handled by individual companies is beset by high empty haul rates and low efficiency. This paper takes the lead in exploring a new business model and possibilities of establishing a common service platform for the first mile. We investigate strategic decisions of two courier logistics companies competing with partially substitutable collection service. They can choose to cooperate with the cost-efficient platform to enjoy a saving, while the market share of their original channel has to be eroded by the outsourcing channel. We propose three scenarios: (i) Both companies have only one direct channel. (ii) Only one company has two channels. (iii) Both companies have two. This paper comprehensively presents the joint effect of internal competition and the cost saving on companies’ welfare and customers’ consuming experience. The findings show that in most cases, cooperating with the platform will help the companies gain a profit increment and customers will benefit from a price decrease compared to the current practice. However, when customers loyalty to the direct channel is moderate, they will suffer a price increase, though companies are better off. Additionally, given the cost advantage of outsourcing is slighter, and customers show less difference to two channels, the internal competition will be the most intensified and overtake the effect of cost sparing. The company running two channels will suffer a profit loss.

Original languageEnglish
Pages (from-to)153-169
Number of pages17
JournalEuropean Journal of Operational Research
Volume288
Issue number1
DOIs
Publication statusPublished - 1 Jan 2021
Externally publishedYes

Keywords

  • Customers loyalty
  • Dual channel
  • First mile
  • Game theory
  • Logistics

ASJC Scopus subject areas

  • General Computer Science
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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