An Experimental Economics Investigation of Shipper-carrier Interactions in the Choice of Mode and Shipment Size in Freight Transport

The paper discusses the theoretical and empirical evidence on the subject and concludes that freight mode choice can be best understood as the outcome of interactions between shippers and carriers, and that mode choice depends to a large extent on the shipment size that results from shipper-carrier interactions. These conclusions are supported by economic experiments designed to test the hypothesis of cooperative behavior. This was accomplished by conducting two sets of experiments (ones with the shipper playing the lead role in selecting the shipment size; and others in which the shipment size decision was left to the carriers), and by comparing their results to the ones obtained numerically under the assumption of perfect cooperation. The comparison of results indicated that the experiments converged to the perfect cooperation case. This is in line with the conclusion from game theory that indicates that under typical market conditions the shipper and carrier would cooperate. These results also imply that it really does not matter who “makes” the decision about the shipment size and mode to be used at a given time period, as over time the shipper—that is the customer—ends up selecting the bids more consistent with its own interest. In other words, these results do not support the assumption that freight mode choice is solely made by the carriers.