Price and distribution range of logistics service providers considering market competition

Purpose: The purpose of this paper is to analyze the relationship between market competition and distribution strategy for logistics service providers (LSPs), including freight price, service level (delivery speed), and service coverage. Design/methodology/approach: The authors consider two risk-neutral LSPs in which one is an existing company and the other is a new entrant. The existing LSP has a sound distribution network and provides service in both local and remote areas. The new entrant LSP should determine the freight price and service coverage to compete for business. The authors use a Stackelberg game to model the competition between two LSPs with assumptions of consumers’ utility and demand distribution. Numerical examples are used to validate the findings. Findings: The findings show that the distribution strategy for LSPs depends on the ratio of the cost difference and shipping speed difference and demand structure. The LSP with higher shipping speeds only need to meet demands in local areas and may stay out of the market in some cases. To compete for business in the whole areas is more profitable for the LSP with lower shipping speeds when either unit service cost or the potential demand in remote areas is low enough. Otherwise, the LSP with lower speeds should stay out the market of remote areas. Originality/value: This study is a preliminary research on the relationship between market competition and distribution strategy for LSPs and contributes to service operations management literature and strategic management for LSPs.