Pricing strategy for logistics service platforms with competition and user distance preference

Abstract

AbstractIn practice, the demanders (customers) and providers (sellers) of logistics service platforms not only care about prices but also are sensitive to the spatial distance between each other (because longer distance would lead to longer service waiting time). We study the impacts of spatial distance preference on two competing logistics platforms' pricing strategies. Two groups of agents (demanders and providers) are required to pay the logistics service platform a fixed (registration) fees to gain access. We analyze two commonly seen scenarios in practice: (i) the single‐homing model—both demanders and providers can only join one of the platforms; (ii) the competitive bottleneck model—demanders (providers) can join only one of the platforms while providers (demanders) are allowed to join both platforms. We find that under the single‐homing setting, an increase in demanders' (providers') distance preference would lead to higher but lower (lower but higher) prices charged to demanders and providers, respectively, and higher profits of both platforms. Under the competitive bottleneck model, however, the price charged to demanders (providers) might decrease (increase) in demanders' (providers') distance preference. Finally, compared to the case in which both sides single homing, we find that allowing providers or demanders to join both platforms would decrease the profits of both platforms if users' distance preference is sufficiently low or high.