Horizontal Carrier Coordination through Cooperative Governance Structures

This paper examines how governance structures found in the trucking industry impact the coordination between a forwarder and its carriers, including three cases: no forwarder coordination (direct contracting with shippers), investor-owned coordination (price-only contract), and carrier-cooperative coordination (revenue-sharing contract). The carriers are engaged in a Cournot competition, where they decide upon service provision and truck investment. Economic theory predicts that integration of firms under oligopolistic competition always leads to a more efficient supply chain in the sense that prices decrease and quantities increase, which reduces total profits. This suggests that the benefit of avoiding double marginalization does not outweigh the benefit of upstream competition in the successive oligopoly case, whereas both integrated and independent firms coexist, the integrated chains do perform better. In this paper we examine the interaction between governance structures, a key decision when managing supply chains, including that found in the trucking industry, and shippers willingness to procure trucking services instead of producing them using a private fleet. We find that cooperative governance can contribute to improved service provision, reduced service price, improved consumer surplus, and improved profit for the carriers in equilibrium. We use parameter values based on the Swedish trucking industry and a larger grocery retailer acting as shipper to numerically illustrate the impact of different governance structures.