Scope for application in freight transport The use of experimental economics (EE) in transport, and especially in analysing freight transport has considerable appeal. Two of the problems that freight modellers have to face are that for each shipment there can be several decision-makers (shippers, carriers, drivers, third and fourth-party logistics providers) and that data (especially at the level of the individual firm) are scarce. EE could help in solving both problems: it can be used to study situations with several interacting players (in a market and/or game-theoretic setting) and it can provide behaviourally rich data on commercial decisions for which data are usually not available. Especially market experiments could be particularly useful in freight transport, because many of the outcomes in freight transport are determined on markets (e.g. the freight rates that shippers pay for the services of the carriers). Several market trading institutions have been investigated in EE. The most relevant candidates for freight transport analysis are the 'posted offer auction' and the 'double auction'. In the former type of auction, sellers propose prices publicly. Then the first buyer engages in as many transactions at the posted prices with sellers as he/she desires. After this, another buyer is selected at random and given a chance to buy. When all buyers have had this opportunity or when all sellers are sold out, the trading period stops. In a next trading period, the sellers can list new prices, etc. In the double auction, there is more room for decision-making by the buyer, and the process of trading becomes sequential: in the experiment both buyers and seller can raise their hand and make public bids (buyers) and offers (sellers). In a trading period, the bids are raised and the offers lowered until the goods are sold (or a fixed amount of time has passed). This is the trading institution that is used most in EE, after the pioneering work by Vernon Smith (Nobel Prize winner in Economics in 2002 for his contributions in EE) in the 1960s, who found a fast convergence to competitive prices when using this mechanism for many situations. At the University of Leeds a logistics experiment is planned, with students as the participants. In freight transport there are trade-offs between inventory costs and transport costs. Higher transport frequencies lead to higher transport costs (because of the use of smaller or not fully loaded vehicles), but smaller inventories at the retail end. This can be represented as a market game between receivers (retailers) on the one hand and senders (manufacturers) on the other hand. The receivers want to maximise the revenue from sales to consumers minus the sum of purchase and inventory costs. The senders want to maximise the revenues from selling their products to retailers minus sum of production and transport costs (and possibly inventory costs as well). The final outcome depends on the distribution of market power and access to information between the two sides, and several variants for these distributions will be tested (e.g. factory gate pricing, vendor-managed inventories, introduction of logistics service providers). The parts of experimental economics theory that appear most relevant for application in freight transport are considered focussing on market experiments to search for empirical regularities. For the covering abstract please see ITRD E135207.
Abstract