Pricing decision research for TPL considering different logistics service level influencing the market demand

Abstract

<p><strong>Purpose:</strong> With the rapid development of economy and the support of government policy, the development of the logistics industry has become a new economic growth engine. As we all know, the reasonable price of logistics service is the most critical factor for logistics enterprises to win market share and make profit. At the same time, the service level is one of the most important factors which will influence the size of the market share. Therefore, this paper constructs a pricing model considering a situation that the logistics service level affects the market demand. This model helps the enterprises to make scientific decisions.</p><p><strong>Methodology:</strong> To achieve this objective, this paper constructs the TPL service and the pricing decision models based on the game theory.</p><p><strong>Findings:</strong> The conclusion shows that under the situation of independent decision-making, the enterprise which has strong ability of logistics service does not necessarily have a competitive advantage, while pricing equilibrium under the situation of joint decision-making, not only make both sides get more income, but also be conducive to improve the level of service.</p><p><strong>Research limitations: </strong>In this research, there are some assumptions that might affect the accuracy the model such as there are only two TPL enterprises to participate in, and considerations are taken under the condition of complete information environment. These assumptions can be relaxed in the future work.</p><p><strong>Originality:</strong> In this research, logistics service level is taken account into the areas of logistics service pricing, which makes the models more practical and more perfect. And this paper constructs game models based on game theory to make up the limitations of traditional pricing theories in logistics service pricing.</p

A Review of Logistics Pricing Research Based on Game Theory

“…To meet the complex pricing scenarios, some scholars have used multiple game approaches instead of using a single game approach. Comparative analysis of logistics decision making under centralized or decentralized conditions is a hot topic, and there are many studies in this field [34,40,43,59,61,70]. In general, centralized decision making can achieve Pareto optimality, but its strict requirements on supply-chain participants make it difficult to achieve in practice.…”

“…Meanwhile, scholars propose the cooperation of logistics firms due to the strong externalities of logistics networks. Some literature explores the pricing strategies and service levels of two TPLs in independent and joint decision making [34]. The results show that the pricing equilibrium under joint decision not only increases the profit of the system, but also contributes to an improvement in the service level.…”

“…Service indicator is another key factor affecting logistics pricing. Some scholars argue that the logistics service level will affect the market demand, and then affect the optimal pricing decision of LSPs [30,34,37,47,58]. Mo and Chen's study [47] reveals that different pricing policies for different service qualities are not only beneficial to the profitability of freight companies, but also to the improvement in service quality.…”

“…A higher logistics service level also means more logistics service efforts by enterprises, and service efforts will generate service costs. Therefore, some scholars believe that logistics service level will not only affect the market demand, but also the cost of logistics services [24,25,29,30,34,43,46,63,64]. When conducting research on service quality, some scholars have focused on a single indicator.…”