Mode-choice Games in Intermodal Transport Chains - Theoretical Model and Some Case Study Evidence



Mode-choice Games in Intermodal Transport Chains - Theoretical Model and Some Case Study Evidence

Authors

O Sunde, Bergen University College; S Braathen, Molde University College, NO

Description

Static non-cooperative games have been analysed to understand why intermodal transport is often not used when it probably should be. We modify these mode-choice games in various ways and a case study is presented.

Abstract

In Europe, the focus on intermodal transport to relieve road congestion and reduce emissions has been an issue on the political agenda for years. Studies have shown that issues related to costs functions, information bias and uncertainty can cause inefficient transport solutions to be used. E.g. road transport is used despite apparent costs advantages of sea transport.

Static non-cooperative games have earlier been analysed to understand why this tends to happen. In these models, two shippers are to make a choice between two modes of transport. One mode of transport, sea transport is characterised by economies of scale. The other mode of transport, road haulage, is characterised by constant returns to scale. At the macro level however, truck is characterized by possibly "diseconomies" of scale due to congestion. The shippers (players) have complete information regarding each other's payoffs (cost of transport). It was demonstrated that inefficiency may occur in such a situation.

We have modified this mode-choice game in various ways. We allow that ships may have less pronounced economies of scale. We assume that the cost of making use of road haulage is unaffected by the choices made by the two shippers; in other words, there may be congestion at the macro level, but congestion is not significantly affected by the choices made by the two shippers. Each shipper must "gamble" and choose between the cost of truck transport which is known with certainty, and the cost of ship transport which is uncertain (as there is uncertainty regarding whether the other shipper will share the fixed cost or not). In such a bargaining game of incomplete information in which there is a conflict of interest, simple communication amongst the shippers will not solve the problem. In this case however, an outside or external agent may improve on efficiency by providing the shippers with the incentives to reveal truthfully their willingness to pay provided that such an agent can commit himself. For instance, such an agent could implement mechanisms known from the literature where truth-telling is a dominant strategy in order to reveal the willingness to pay for a public good (which in our case is the fixed cost associated with ship transport). Implementing such mechanisms will raise revenue that falls short of the cost. Thus, there is need for public funds in order to balance the budget. As public funds has a shadow price however, this implies that there is a trade-off between efficiency and (the cost of) public funds.

We have maintained the assumption of only two carriers as this simplifies the games. Adding more shippers could provide valuable insight into how the outcome may depend on the number of shippers. For instance, in the bargaining game we have detected that shippers will tend to "shade" their willingness to pay for ship transport as paying for the fixed cost associated with this mode of transport is a kind of "common good". Increasing the number of shippers reduces the probability that a specific shipper is pivotal concerning whether or not the sum of contributions exceeds the fixed cost. If so, each shipper can be predicted to reduce his contribution. In other words, the tendency to "free ride" on the contributions made by fellow shippers will increase as the number of shippers increase.

We have done in-depth interviews with 6 stakeholders that either has implemented an intermodal solution, or that are in the process of setting up one. Two of the stakeholders have also been involved in attempts earlier to set up intermodal solutions, attempts that did fail at the time.

A public sector moderator seems to have played a crucial role in one of the cases, in terms of getting information about volumes, and setting up communication with foreign ports also with the purpose of getting suitable return cargo.

The cargo owners appears to have a less important role in deciding upon whether intermodal transport should be used in typical cases where agents are used by many smaller customers. The agent is the main decision maker, and acts as the focal firm in the intermodal supply chain. Third party logistics services can extend product variety in the intermodal transport chain and hence create a kind of "strategic distance" towards more standardized intermodal solutions. Hence, one could anticipate that a bit more expensive intermodal transport chains could be competitive after all, if 3 PL services that suit the customer's supply chains are included.

Publisher

Association for European Transport