Liner alliances with heterogeneous price level and service competition: Partial vs. full

Abstract An alliance allows liner companies to expand service scope but deprives them of unique route advantages. Facing fierce service competition, liner companies with heterogeneous price levels have different preferences on whether to join the alliance and whether a specific route is covered. This paper considers service competition between two liner companies to examine whether they form alliances on their own primary route. The game model of two liner companies that do not form alliances is built as the benchmark, and then game models of three alliance forms are designed. The service quality decisions of two liner companies are formulated as a Nash game. The results indicate that compared with no alliance, two liner companies may achieve a win-win outcome by forming an alliance on the primary route of the company with a low price level or a full-route alliance. For alliance forms, the company with a high price level prefers to form an alliance on the primary route of the company with a low price level compared with the full-route alliance, which means that the two participants can achieve only a partial-route alliance. Interestingly, the alliance they achieve will also benefit some shippers, resulting in a triple-win outcome. An alliance can also allow the company with a high price level and high service quality to gain a larger market share, but this outcome will not occur without an alliance. Moreover, alliances may enable shippers to enjoy better service-price ratios.