1. By Brandon Lennox, Timothy Prichard, Roger Allen

2.  Market Structure  Demand  Elasticity  Economies of Scale and Scope  News Vendor Problem  Conclusion

3.  Oligopoly  United Postal Service Vs. FedEx  Vertical Boundaries  Suppliers

6.  High demand  Seasonality  Recession

7.  Transportation relies heavily on economies of scale and scope  This comes from shipping many different products from many different customers  This gives the ability to spread out overhead costs over a vast amount of items

8.  How are shipping companies trying to use economies of scale and scope.  Building massive ships to carry more and more containers.  Mergers are also being used in shipping to support economies of scale.

9.  International shipping company that uses trucks, planes, and distribution centers.  They take individuals packages and ship them all over the world.  This can not be done with just a few packages, but must be done with thousands of them.

10.  Exists when inventory or capacity expires  Freight Industry – Unsold Capacity ◦ Schedules ◦ Deadlines ◦ Newsvendor problem for transported goods

11.  Different common types of contracts ◦ Customer pays flat rate for truck  Buys all capacity for that truck  Newsvendor problem passed on to customer ◦ Truck waits till either it is filled or must leave to meet schedule  Newsvendor problem issue of trucking firm ◦ Selling Capacity by the pallet  Risk of newsvendor problem on trucking firm

12.  Strict schedule – very rigid  Consequently suffers heavily from newsvendor problem  Collective customer needs between hubs rarely exceeds locomotive capacity

13.  Shipper must pay a docking fee to harbor operators  Shipping overseas – no substitute ◦ Gives shipper negotiating power ◦ Allows shipper to better mitigate newsvendor risk to customers

14.  Stricter the schedule = More risk of newsvendor problem  Many times shipping company must make schedule without knowing exact customer demand  Other times schedule is made based on contracts won

15.  Depends who has negotiating power  Negotiation power depends on availability of alternatives or substitutes ◦ Many available substitutes = Customer holds negotiating power ◦ Few available substitutes = Shipper holds negotiating power

16.  Oligopoly  Subject to seasonality and economic conditions  Price and Income elastic  Vertical boundaries  The newsvendor problem