Coordination game analysis through penalty scheme in freight intermodal service

Abstract

We study coordination mechanisms through penalty schemes to cooperate the behavior of two firms as successive segment carriers to make transport plan separate in freight intermodal market. Based on the different cost structure and service level constraint to two firms, we compare the decision making in two possible decision systems, that is, centralized system and decentralized system. In a centralized systemthe first best case as a benchmark is contrasted with decentralized system. In the decentralized system, a Stackelberg game model is formulated between two firms. Some discordant decisions would be made by firm I's overestimate motivation and firm II's undersupply motivation. Our primary objective is to design penalty schemes to coordinate the interactions for two firms. The study shows in a decentralized system, setting suitable penalty schemes can coordinate the two firms' decision. We also study the feasible range of penalty parameters, and some important managerial insights are then deduced. In the end, a numerical example is provided to verify the validity of results, some concluding remarks are presented subsequently. © 2012 Jian Liu et al.