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Strategic entry to regional air cargo market under joint competition of demand and promised delivery time

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  • Wang, Fan
  • Zhuo, Xiaopo
  • Niu, Baozhuang

Abstract

In air cargo industry, mainline carrying and regional carrying are complementary services that form an air cargo service supply chain. Recently, many mainline carriers (MCs) have strategically entered upstream regional carrying service market to offer “one-stop-delivery” service and hence, competed with incumbent regional carriers (RCs). Note that promised delivery time (PDT) competition is essential and common in this industry. We study a MC's entry decision using a joint demand and PDT competition model. We investigate the entry mode issue (fully-controlled or joint-venture), which influences the equilibrium profits and channel structure, and characterize the value of upstream competition and vertical cooperation between the MC and incumbent RC. Interestingly, we find that the MC's upstream entry can result in a win-win situation, or a lose-lose situation for the MC and the incumbent RC. Comparing parties’ profits with and without PDT competition, we find that multi-dimensional competition may weaken the negative effect of upstream entry on the incumbent RC, resulting in a price advantage and PDT disadvantage for the MC. We also find that a fully-controlled entry mode is always a dominant strategy with or without PDT competition. Moreover, by assuming power distribution of the PDT, we find that the increase in service rate can result in a lower price and shorter PDT quotation for the MC. A(n) decrease (increase) of service rate strengthens (weakens) the PDT disadvantage, and this effect is strengthened with fully-controlled entry mode. We also examine Bertrand models and characterize the entry effects and the MC's entry decisions under joint price and PDT competition.

Suggested Citation

  • Wang, Fan & Zhuo, Xiaopo & Niu, Baozhuang, 2017. "Strategic entry to regional air cargo market under joint competition of demand and promised delivery time," Transportation Research Part B: Methodological, Elsevier, vol. 104(C), pages 317-336.
    • Handle: RePEc:eee:transb:v:104:y:2017:i:c:p:317-336
    DOI: 10.1016/j.trb.2017.08.002
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