Flexibility of Delivery Frequency in Logistics Competition

We investigate the strategic impact of exible delivery frequencieson the competition of logistics service providers (LSPs) in a supplychain. LSPs compete for customers who choose an exclusive serviceprovider based on their individual preference, prices and inventorycosts. The service provider which oers the higher delivery frequencyis more attractive to customers, because inventory holding costs arekept low. In reverse, higher delivery frequencies entail higher trans-portation costs for the LSPs (frequency eect), which is only partiallyoset by a community cost eect that captures the economies of scalefrom larger market share and synergies from increased load eciency.We consider a scenario in which only one of the two LSPs can chooseits delivery frequency strategically. Our main result is that exibility infrequency choice is only a strategic advantage for the LSP if customers'inventory holding costs are relatively high compared to transportationcosts. In this case customers especially appreciate the high deliveryfrequencies and the exible LSP is able to satisfy this demand. How-ever, when inventory holding costs are comparably small with respectto the LSPs' transportation costs, the inexible LSP is at an advan-tage. In this case, inexibility acts as a credible strategic commitmentwhich the exible LSP can only react to. Furthermore, low inventoryholding costs lead to a situation in which the LSP with the exibledelivery frequency faces the dilemma whether to choose its optimaldelivery frequency and to make less prot than his competitor or toforfeit some of its own prots in order to make larger prots than theother LSP.