Posted Price versus Hybrid Mechanisms in Freight Transportation Marketplaces

TL;DR

This paper compares posted price and hybrid auction mechanisms in freight marketplaces, demonstrating that hybrid mechanisms yield higher profits and providing bounds for their performance across different market sizes.

Contribution

It introduces a two-stage decision framework with a fluid approximation model to analyze carrier behavior and compares the profitability of posted price versus hybrid mechanisms in freight platforms.

Findings

Hybrid mechanisms outperform posted price mechanisms in profit.

Tight bounds are established between the two mechanisms for various market sizes.

Numerical simulations validate the theoretical results using industry data.

Abstract

We consider a freight platform that serves as an intermediary between shippers and carriers in a truckload transportation network. The platform's objective is to design a policy that determines prices for shippers and payments to carriers, as well as how carriers are matched to loads to be transported, to maximize its long-run average profit. We propose a two-stage decision framework to model carriers' load choice behavior, where carriers choose a lane according to the multinomial logit (MNL) model based on the platform's posted price in the first stage and book a load in the second stage. We analyze two types of carrier-side mechanisms commonly used by freight platforms: a posted price mechanism and a hybrid mechanism where carriers can either book loads at posted price or submit their bids in an auction. The proposed mechanisms are constructed using a fluid approximation model to incorporate carrier interactions in the freight network. We show that the hybrid mechanism has higher profits than the posted price mechanism. We prove tight bounds between these mechanisms for varying market sizes. The findings are validated through a numerical simulation using industry data from the U.S. freight market.