Pricing and quality setting strategy in maritime transportation: Considering empty repositioning and demand uncertainty

Mehdi Najafi and Hossein Zolfagharinia

International Journal of Production Economics, 2021, vol. 240, issue C

Abstract: Imbalanced international trade and the limited number of containers in the maritime transportation industry have resulted in considerable costs and decreased profits for shipping firms. To manage these issues, this study utilizes price management techniques to control empty container repositioning in a transportation system. In this system, there is a firm providing transportation services between two ports in both directions. Each direction has its own uncertain potential demand that can be affected by the prices and the quality set by the firm. We develop a mathematical formulation to set the quality and prices of the service in order to maximize the firm's profit. Due to demand uncertainty, we analyze different states of demand realization and discuss optimal policies for each state. These policies are then analyzed to develop a robust pricing and quality setting strategy under uncertainty. In addition, in order to easily implement the developed strategy, we propose an algorithm to convert the obtained results into a practical procedure that can be implemented by the shipping firm. Lastly, we investigate the impact of several factors on the firm's profit and demonstrate that not only the firm's profit but also the imposed regret depend on both internal and external factors such as the potential demands, price sensitivity, empty and loaded movement cost, and uncertainty control parameter.

Keywords: Pricing strategy; Service quality; Maritime transportation; Mathematical formulation; Uncertain demand; Robust optimization (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:240:y:2021:i:c:s0925527321002218

DOI: 10.1016/j.ijpe.2021.108245

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