A study on a transportation market with empty equipment repositioning

This paper studies a freight transportation market with two firms providing transportation services between two locations. Demands for transportation service in two directions are heterogeneous in market size, price sensitivity and competition intensity etc. Firms make decisions on transportation prices. Realized demand in these two directions can be unbalanced. To sustain the business, firms have to reposition empty equipment from a surplus location to a shortage location. We build a mathematical model to study the pricing policy and outcome of competition between two firms. The pricing policy is either to achieve the balance of realized demands or treat the demand in each direction independently. Furthermore, we corroborate how the profit is affected by price sensitivity and unit repositioning cost. It is surprising to find that profit may increase with price sensitivity and unit repositioning cost in a competitive market.