Transportation Research Part B: Mohammad Tamannaei, Hamid Zarei, Morteza Rasti-Barzoki

Transportation Research Part B 153 (2021) 272–295
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Transportation Research Part B

journal homepage: www.elsevier.com/locate/trb
A game theoretic approach to sustainable freight transportation:

Competition between road and intermodal road–rail systems with
government intervention
Mohammad Tamannaei a, *, Hamid Zarei b, Morteza Rasti-Barzoki b
a
Department of Transportation Engineering, Isfahan University of Technology, Isfahan 84156-83111, Iran
b
Department of Industrial and Systems Engineering, Isfahan University of Technology, Isfahan 84156-83111, Iran
A R T I C L E I N F O A B S T R A C T
Keywords: Sustainable freight transportation is a logistics approach that provides affordable services to
Game theory consumers where environmental, economic, and social sustainability dimensions are concerned.
Freight transportation Governments usually improve sustainability dimensions in freight transportation by imposing
Sustainability
taxes on transportation systems. Therefore, they should extend their knowledge on interactions
Rebound effect
Government
between sustainability dimensions and how their interventions affect each dimension. In this
Policy-making regard, we analyze competition between two freight transportation systems in the context of
government intervention. These systems include road and intermodal road–rail transportation
modes, where the latter is regarded as an environmentally sustainable mode. A sequential game is
addressed to analyze the duopoly competition. In the upper level, a government, as a Stackelberg
leader, imposes taxes on fuel usage based on environmental, economic, and social concerns. In the
lower level, a Nash game is developed to analyze price competition in the transportation market.
Our analyses reveal that: (a) Given a fixed level of the consumers’ loyalty to their specific
transportation systems, economic and social sustainability are consistent with each other, while
they conflict with environmental sustainability. (b) Economic risks increase economic sustain
ability requested by the transportation systems. Such a relationship and the mentioned conflict
between environmental and economic sustainability imply that a reduction of economic risks by
the government indirectly contributes to environmental sustainability. (c) An increase in the
consumers’ loyalty simultaneously improves the three sustainability dimensions. (d) The energy
efficiency improvements of the transportation systems may pose adverse environmental and so
cial effects, called the rebound effects. Moreover, government intervention effectively eliminates
such rebound effects. (e) Government support for the service enhancement of the intermodal
system, combined with the national advertisement of this system, may exempt the government
from subsidy payment.
* Corresponding author.
E-mail address: m.tamannaei@iut.ac.ir (M. Tamannaei).
https://doi.org/10.1016/j.trb.2021.09.002
Received 1 December 2019; Received in revised form 9 April 2021; Accepted 3 September 2021
Available online 21 October 2021
0191-2615/© 2021 Elsevier Ltd. All rights reserved.
M. Tamannaei et al. Transportation Research Part B 153 (2021) 272–295
Nomenclature
Parameters
i Freight transportation system index (FTSi, i = 1, 2)
θu Fuel consumption rate of a truck for carrying one unit of demand within one unit of distance, θu > 0.
θa Fuel consumption rate of a train for carrying one unit of demand within one unit of distance, 0 < θa < θu.
Ai The market base for the demand of FTSi, Ai > 0.
βp Self-price sensitivity of the demands, βp > 0.
γp Cross-price sensitivity of the demands, 0 < γ p < βp.
Di Distance between the origin and the destination in FTSi, Di > 0.
d Total roadway ratio in the distance between the origin and the destination in intermodal road-rail transportation, 0 ≤
d < 1.
f Base price of one unit of fuel, f > 0.
ci Summation of costs excluding the fuel cost, imposed on FTSi for carrying one unit of demand from the origin to the
destination, ci > 0. c2 includes transloading costs.
g1 Fuel consumption of FTS2 for carrying a unit of demand in the road mode, g1 = dD2θu
g2 Fuel consumption of FTS2 for carrying a unit of demand in the rail mode, g2 = (1 − d)D2θa
ωi Fuel consumption of FTSi for carrying a unit of demand, ω1 = D1θu, ω2 = g1 + g2, 0 < ω2 < ω1.
ϕi Basic transportation costs of FTSi (excluding the fuel taxes), φi = ci + ωi f
Mi Minimum acceptable profit of FTSi, Mi ≥ 0.
F Maximum acceptable consumption of fuel for the government, F > 0.
Decision variables
pi Transportation price for carrying one unit of demand from the origin to the destination in FTSi
xu The amount of tax levied by the government on a unit of fuel consumed by truck, xu < 0 denotes a subsidy.
xa The amount of tax levied by the government on a unit of fuel consumed by train, xa < 0 denotes a subsidy.
Dependent variables
ci Total cost, imposed on FTSi for transportation of one unit of demand from the origin to the destination
qi Transportation demand of FTSi
πi Profit function of FTSi
TFC Total fuel consumption
TCS Total consumer surplus
Xi Total tax paid by FTSi for carrying a unit of demand, X1 = ω1xu, X2 = g1xu + g2xa.
1. Introduction
With the rapid expansion of freight transportation worldwide, serious concerns are of essence if sustainability is sought. Sus
tainability is a policy concept that takes the environmental, economic, and social dimensions into account (Jeon et al., 2010). A
sustainable freight transportation system offers reasonable access to freight facilities in an environmentally sound and equitable
manner (Black, 2004). Since transportation is a key contributor to supply chain management (Parsa et al., 2020), sustainable trans
portation modes are of great importance, especially from a government perspective. In many countries, road systems provide a major
portion of freight transportation (Bhattacharya et al., 2014). Trucks are the most common vehicles in freight transportation due to their
advantages (e.g., flexibility, speed, and simplified maintenance). In contrast, there are some substantial negative externalities of road
transportation, which make this system unsustainable. Energy consumption, accidents, noise, and environmental pollution are the
major negative impacts of road systems (de Miranda Pinto et al., 2018; Guoquan et al., 2014; Reis et al., 2013; Santos et al., 2010;
Tamannaei and Irandoost, 2019; Tavassoli and Tamannaei, 2020). Energy consumption and environmental pollution are associated to
climate change (Akhmat et al., 2014; Knippertz et al., 2015; Lam and Mercure, 2021). Hence, the optimal usage of transportation
systems, especially road infrastructures, should be prioritized at the national and even global levels.
A railway transportation system is considered as a green transportation mode since it can save energy with low emissions (Chen
et al., 2017a; Cichenski et al., 2017). According to van Essen et al. (2011), the average external costs of freight transportation,
including climate change, air pollution, accident, and noise, are about 6.4 times lower for rail transport than those of the road.
Moreover, a rail system is favored for hauling large quantities of cargo for long distances compared to a road system (Demir et al.,
2016; Ghiani et al., 2013; Guoquan et al., 2014; Wang et al., 2017). Regarding each system’s advantages, a common strategy is to use
both the road and rail modes in the logistics, called intermodal road–rail transportation.
Findings in some studies indicate that the consumers’ decisions to select a transportation mode for their freights are prominently
subject to the critical criterion of transportation prices (Chen et al., 2017b; Dimitriou and Sartzetaki, 2017; Duan and Heragu, 2015;
Kanafani, 1983; Kim et al., 2017; Larranaga et al., 2017; Reis et al., 2013). It is also worth highlighting that sustainability is not
regarded as the main concern for transportation companies; their effort is to maximize their profits in the competitive market.
Consequently, the government may intervene in the market by developing some incentive and penalty policies. It aims to shift freight
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transportation to a more efficient and sustainable system.

A government tends to follow three types of considerations when governing a sustainable freight transportation market with both
road and intermodal road–rail systems. From its point of view, the environmental, economic, and social dimensions of sustainability
must be satisfied. For example, the Intermodal Surface Transportation Efficiency Act (ISTEA), governed by the U.S. Department of
transportation, declares that:
"It is the policy of the United States to develop a National Intermodal Transportation System that is economically efficient and environ
mentally sound, provides the foundation for the nation to compete in the global economy, and will move people and goods in an energy-efficient
manner" (Congress, 1991; Morlok, 1998).
Also, the European Commission has recently initiated a Sustainable Urban Mobility Plan (SUMP). The economic, environmental,
and social dimensions of sustainability are all significant in this plan:
"A sustainable transport system improves accessibility for all, regardless of income and social status; enhances quality of life and the
attractiveness of the urban environment; improves road safety and public health; reduces air and noise pollution, greenhouse gas emissions and
energy consumption; and improves economic viability, social equity, and environmental quality" (Commission, 2020).
As mentioned in the SUMP (Commission, 2020), fossil fuel consumption is a significant concern from an environmental perspective.
Also, the affordability and accessibility of transportation services are two significant social factors for consumers (Commission, 2020;
Ramani et al., 2011), which can be integrated into the consumer surplus indicator (Xiao et al., 2020). The economic dimension, herein
the profits of transportation companies, has a prominent role in the competitive market. In a short-term horizon, a government does
not tend to expel road operators from the transportation system, because this expulsion may impose economic and political challenges
on the entire nation.1 Instead, the government tends to integrate and connect different transportation modes in a sustainable manner.
For example, the ISTEA declares that:
"The National Intermodal Transportation System shall consist of all forms of transportation in a unified, interconnected manner, including
the transportation systems of the future, to reduce energy consumption and air pollution while promoting economic development and supporting
the Nation’s preeminent position in international commerce" (Congress, 1991; Morlok, 1998).
Also, the SUMP plan declares that:
"It helps cities and regions integrate transport modes and encourage sustainable mobility. SUMPs contribute to realizing key mobility goals,
such as better air quality, improved accessibility, and mobility, increased road safety, decreased traffic noise, higher energy efficiency, and
enhanced quality of life" (Commission, 2020).
Finally, China is the third example that highlights the significance of all transportation modes. The Chinese government is
increasing its attention to the role of the truck sector in mitigating air pollution. Improvement in road transportation, combined with a
market share increase of railway transportation and cleaner ports, is expected to reach an eighty percent increase of days with good air
quality in cities (Karl, 2020).
Although a government desires to achieve the three sustainability dimensions, they may not be aligned with each other, which
poses a significant challenge to the government’s decision-making. Therefore, governments should extend their knowledge on the
interactions between different sustainability dimensions and how their interventions could affect each dimension. Also, a solution that
simultaneously improves all three dimensions is practically relevant. To address these issues, the first and second research questions of
this article are as follows:
Question 1 How do the economic, social, and environmental dimensions of sustainability interact in a freight transportation market?
Question 2 How to simultaneously improve economic, social, and environmental sustainability in freight transportation?
Governments usually pursue sustainability objectives in transportation markets by implementing taxes or subsidies on fuels. For
example, in Germany, fuel taxes for ultra-low sulfur Diesel and conventional unleaded petrol are equal to €0.4704 and €0.6545,
respectively (Programme, 2020). A simulation study based on data from the U.S. freight transportation market revealed that a fuel tax
policy of $1.50 per gallon for both rail and road modes could promote sustainability in different ways (Austin, 2015). The tax policy
could shift a 0.8 percentage of transportation from road to rail, which causes a reduction of road transportation externalities by $0.6
billion. It also saves 176 million gallons of total fuel consumption per annum. The mentioned study also shows that the tax policy could
increase $26 billion per year in tax revenues.
Governments usually tend to support intermodal transportation to stimulate the market share of this transportation mode. For
example, the Belgian government provided a subsidy of €30 million per annum to intermodal transportation from 2006 to 2007
(Santos et al., 2015). However, the Belgian government aims to gradually reduce the subsidies it shoulders for supporting intermodal
transportation. In 2014, the subsidies paid to intermodal transportation was about €15 million per annum (Santos et al., 2015).
Accordingly, a response to the following research question can support this decision of the government:
Question 3 How can the government be exempted from subsidy payment without adversely affecting sustainability of freight
transportation?
1
In contrast, in the long-term horizon, governments tend to gradually expelling road operators from transportation markets. By 2030, the Eu
ropean Commission aims to shift 30% of road freight transportation over 300 km to more environmentally sustainable modes, such as rail or
maritime modes. By 2050, its target is to shift more than 50% (Tawfik and Limbourg, 2018).
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The energy efficiency improvement of freight transportation systems is a common strategy adopted in recent years with the aim of
contributing to environmental sustainability. Programs for such improvements require initial investments. Based on data from Council
(2010), the energy efficiency improvement of class-8 trucks may require up to $5.7 billion for a large transportation company.2 In spite
of such significant investments, counterintuitively, these initiatives may increase total fuel consumption, which are usually called
rebound effects (Agrawal and Bellos, 2016; Wang and Lu, 2014). Energy efficiency improvement allows transportation systems to
charge less transportation prices, and consequently allows them to absorb more demands. The rationale behind the rebound effects is
that such an increase in transportation demands may negate the decrease in unit fuel consumption (for transportation of one unit of
demand). However, little is known about social effects of energy efficiency improvement in freight transportation. In addition, to the
best of our knowledge, no study has investigated the influence of government intervention on rebound effects. Hence, the fourth and
fifth research questions of this article are as follows:
Question 4 How can energy efficiency improvement in freight transportation affect social sustainability?
Question 5 How does government intervention influence rebound effects in freight transportation?
This article contributes to the literature on sustainable freight transportation by responding to the above-mentioned research
questions. The remainder of the article is structured as follows. Section 2 reviews the literature. Section 3 provides a problem
description. In Section 4, the costs, demands, and the agents’ objective functions are formulated. Section 5 investigates competition
between the two road and intermodal transportation systems. Section 6 investigates the optimal government policies. Section 7
provides some sensitivity analyses and responses to the research questions. A numerical example is presented in Section 8. Finally,
Section 9 concludes the article.
2. Literature review
There are many studies where different dimensions of freight transportation systems are discussed. A structured review study has
been conducted on the literature on multimodal freight transportation based on the strategic, tactical, and operational levels of
planning (SteadieSeifi et al., 2014). Crainic et al. (2018) presented a new taxonomy for the literature on intermodal transportation.
Their research is an instrument to categorize the literature and identify trends and future research on intermodal freight transportation
across modes, time horizons, geographical extensions, and simulation objectives. Some researchers focused on relations between
sustainability and transportation by assessing the negative impacts of different transportation modes in freight systems (Beheshtian
et al., 2018; de Miranda Pinto et al., 2018; Demir et al., 2015; Fan and Lei, 2017; Huang et al., 2016; Mostert et al., 2017; Swarts et al.,
2012; Tolliver et al., 2013; Zhu et al., 2016). The discussion on sustainability and the selection of green freight modes like intermodal
road-rail systems are still new and emerging issues in this field (Bask et al., 2017). Some of the previous studies have taken into account
competition between freight transportation systems. In a study presented by Chen et al. (2017b), competition in container freight
transportation is analysed from the perspectives of consumers. They used a game-theoretic model, and discussed competition between
rail and sea shipping modes with respect to both travel time and transportation costs. Their model is numerically evaluated through a
case study of intercontinental container freight transportation between China and Germany. Tawfik and Limbourg (2018) and Tawfik
and Limbourg (2019) studied the pricing decisions of intermodal operators as powerful instruments to promote intermodal trans
portation and reduce the environmental externalities of transportation systems.
Larranaga et al. (2017) assessed transportation policies that can encourage intermodal transportation to enhance sustainability in
Brazil. Their results demonstrate that infrastructure investments have greater effects on intermodal utilities compared to cost re
ductions. Guo et al. (2016) discussed cooperation mechanisms for road and rail companies, to determine revenue-sharing plans,
transhipment procedures, and service quality controls. Saeedi et al. (2017) developed a multi-level market analysis framework to
model competition in intermodal freight transportation networks. They assessed the effects of different business practices on a
competitive transport market and the welfare of the society. Zhang et al. (2018) developed a competition model for an intermodal
network design problem to maximize profits considering the shipper’s route choice behavior by using game theory.
There are some studies focusing on the government intervention in a freight transportation market. Duan and Heragu (2015)
assessed a government tax policies on intermodal freight transportation including railway and highway modes. This tax is imple
mented as an emission regulation, in order to achieve a trade-off between the economic costs and environmental impacts of freight
transportation. Kundu and Sheu (2019) analyzed the effects of a government subsidy program on the shippers’ modal shift from
maritime to rail and found the optimal subsidies that cause heterogeneous shippers to switch between the two mentioned modes.
Fahimnia et al. (2015) developed a tactical supply chain planning model under a carbon tax policy scheme. They provided a cost/
emission trade-off analysis to evaluate the effects of the governmental tax decisions on emissions reduction. Wang et al. (2015)
developed a two-stage Stackelberg game approach to analyze the effects of government carbon-emission tax on the selection of
transportation modes. They found that imposing reasonable carbon-emission taxes can improve social welfare.
Santos et al. (2015) focused on the improvement of intermodal road-rail freight transportation in Europe by developing three
policies: subsidizing intermodal operations, internalizing external costs, and optimizing the locations of intermodal terminals. The
2
Council (2010) estimated that a comprehensive program reduces about 51% of fuel consumption of class-8 trucks, and requires an investment of
$84,600 per truck (Pg. 148). A large company like Penske Truck Leasing Co. owns over 67,000 class-8 trucks (Pgs. 17 & 19). Therefore, it requires
about $5.7 billion for investment in such an energy efficiency improvement.
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results demonstrate some considerable effects of the policies on intermodal competitiveness. de Rus and Socorro (2014) analyzed the
optimal solution for investing in a complementary or rival new infrastructure under the existence of an incumbent transport infra
structure and presented the optimal access pricing with respect to different investment decisions. Jiang et al. (2015) focused on
government policies in assigning different capital subsidies. They developed a method based on the Stackelberg game theory to assess
the effectiveness of subsidies in different freight transportation systems. Feng et al. (2016) assessed the pricing issue in rail freight
transportation, by regarding both the environmental policies of the government and the profit maximization of rail companies in a
simultaneous manner. Kuo et al. (2016) analyzed the government policies and enterprise strategies for implementing carbon taxes in a
supply chain, considering greenhouse gas emission. The relations between the government and two competitive green and non-green
supply chains were studied in Madani and Rasti-Barzoki (2017). They considered government intervention with social objectives by
adopting different pricing policies. Saberi (2018) presented a network model for freight carriers to address a sustainable supply chain
with multi-periods and multi-tiers including carriers, retailers and manufacturers by using dynamic games. The results could provide
strategic solutions to help decision makers for tax policies.
|In the context of transportation, an emerging research stream has focused on specific government sustainability policies on fuel
consumption. Using a case study in Iran, Tamannaei et al. (2021) addressed some sustainability objectives of a government in a
transportation market, which consists of an incumbent and an entrant intermodal operators and a road transportation system. Their
numerical results indicate that fuel taxing policies can affect the entrant operator’s location decision and the equilibrium trans
portation pattern in the transportation network. They found that high values of fuel tax on the road mode do not necessarily improve
safety and environmental conditions. This result is mainly due to the fact that both the intermodal and road operators use the road
mode.
Tscharaktschiew (2020) addressed the interplay between a government’s maximum speed and fuel tax regulations for highway
drivers. Conventional wisdom suggests that the maximum speed regulation should be adopted. This is because drivers do not consider
the externalities of their high speeds imposed on the other drivers and stakeholders, i.e. high accident risks and high fuel consumption.
Counterintuitively, the researcher shows that a high fuel tax can trivialize a maximum speed regulation. The tax regulation encourages
drivers to lower their speeds and aligns their economic benefits (tax save) with the externalities of their speeds.
Rasti-Barzoki and Moon (2020) addressed two types of government intervention policies in the Korean vehicle market. The policies
include: (1) taxing policies, i.e., fuel taxes and vehicle purchasing tax, and (2) support for the research and development (R&D)
expenditure of the vehicle manufacturer, and support for consumer awareness programs. The researchers argue that the consumers’
vehicle usage depends on various factors, such as the rebound effects related to the vehicle manufacturer’s R&D program, their
environmental awareness, and the final fuel price. The results indicate that the first intervention policy, combined with the govern
ment’s social sustainability maximization, is more effective to maximize the manufacturer’s profit and minimize the vehicle price than
the second policy.
Lam and Mercure (2021) addressed the interplay between six sustainability policy instruments of governments in the trans
portation sector of five countries. The instruments include: vehicle tax, electric vehicle (EV) subsidy, EV mandate, fuel economy
standards, annual registration tax, and fuel tax. The researchers investigated the combination of instruments from both perspectives of
emission reduction and cost-effectiveness. They concluded that the EV mandate should synergize with the fuel tax instrument so that
the effectiveness of the EV mandate is enhanced.
There are few studies conducted on the influence of government decisions on sustainable freight transportation in a competitive
market. To the best of our knowledge, no study has comprehensively investigated the role of government intervention in different
sustainability dimensions of a competitive freight transportation market. A recent review article on transportation markets has con
tended the relevance of this topic for future research: “The governments set the rules of the game but are often also important players in the
market; hence their role and decision variables should be included directly in the analysis, possibly in a first stage of the game”, said (Adler
et al., 2021). Accordingly, our study contributes to the literature on freight transportation in two main ways. First, a game-theoretic
model is developed to effectively analyze the competitive behaviors between road and intermodal road-rail freight transportation
systems. The competition is modelled as a non-cooperative game. Second, a Stackelberg leader-follower game approach is adopted to
address the effects of government intervention. Also, the interplay between the mentioned competition and different sustainability
dimensions, without and with government intervention, are discussed.
3. Problem description
The objective of this article is to analyze competition between two freight transportation systems (road and intermodal road-rail),
abbreviated as FTSs by the authors, in the context of government intervention. Subscripts ‘1’ and ‘2’ in FTS1 and FTS2 introduce the
road and intermodal systems, respectively. They offer services to consumers for the haulage of their cargoes from an origin to a
destination.
In FTS1, the cargoes, represented by transportation demand q1, are hauled from the origin to the destination only by means of trucks
travelling on a road network. In FTS2, the cargoes, represented by transportation demand q2, are hauled by both the road and the rail.
In this case, the cargoes are hauled from the origin to the nearest rail station by means of trucks, and then are hauled to another railway
station by freight trains, and finally trucks deliver the cargoes to their destination. Both systems are managed by third-party logistics
(3PL) companies, which provide freight transportation services. On the other hand, the consumers of transportation services decide on
their freight proportion as to be transported by each of the two FTSs. Their decisions are subject to different factors. Transportation
prices are regarded as the most important governing factors. In fact, the ordering decisions made by the consumers determine the
market share of each FTS (Chen et al., 2017b). Consequently, competition is established between the 3PL companies to gain maximum
profits by attracting transportation demands. This indicates that FTS1 and FTS2 are partially substitutable in the competitive
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transportation market.
The two competing systems FTS1 and FTS2 are illustrated in Fig. 1. Because the rail, as an environmentally sustainable trans
portation mode, is capable of saving energy and reducing emissions, FTS2 is of less negative effects compared to FTS1, so it is considered
to be the green mode. In this article, the government, as the Stackelberg leader, intervenes in the competitive transportation market in
the financial and policy-making contexts. The timing of the problem is illustrated in Fig. 2. In stage 1, the government announces fuel
taxes xa and xu. These taxes are added to the base price of one unit of fuel. A negative value of tax evidently acts as a fuel subsidy. In
stage 2, FTS1 and FTS2 announce their transportation prices p1 and p2 per unit of cargo transported. It is straightforward that the
government can affect their decisions by implementing the fuel taxes. Therefore, the transportation prices (p1 and p2) and the
transportation demands (q1 and q2) depend on the values of xa and xu.
The following assumptions are considered for the problem.
Assumption 1. The self-price sensitivity of demand with respect to the transportation price is greater than the corresponding cross-
price sensitivity (i.e. βp > γp > 0), indicating that the demand of an FTS is more sensitive to a change in its own price compared to an
equal change in the price of the competing FTS (Dan et al., 2012; Karray and Sigué, 2015; Kurata et al., 2007; Wei et al., 2013).
Assumption 2. The road distance between the origin and the destination in FTS1 is greater than that of the two road segments in
FTS2, i.e., D1 > d D2.
Assumption 3. The fuel consumption rate of a train is less than that of a truck (i.e. θa < θu), as shown in Fig. 3. Also, for carrying
one unit of demand, the amount of fuel consumed in FTS2 is less than that in FTS1; so, ω2 = D2(dθu + (1 − d)θa) cannot exceed ω1 =
θuD1. In other words, the ratio of ωω21 , as the relative fuel consumption of FTS2 with respect to FTS1, is less than one.
Fig. 1. Two competing freight transportation systems FTS1 and FTS2.
Fig. 2. The timing of the problem.
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Fig. 3. Comparison of fuel consumption rates in FTS1 and FTS2.
4. Model formulation
In this section, given the government taxes xa and xu, the costs, demands, and profits of FTS1 and FTS2 are formulated. Next, the
government policies for intervention in the competitive transportation market are explained.
4.1. The costs, demands, and profits of the FTSs
For each one of the two competing systems, the fuel cost imposed on the transportation system is associated with the fuel con
sumption rates of the applied vehicles, the distance between the origin and the destination, and the total price of one unit of fuel. The
costs are presented in Eqs. (1) and (2):
c1 (xu ) = c1 + D1 θu (f + xu ) = φ1 + ω1 xu = φ1 + X1 (1)
c2 (xa , xu ) = c2 + dD2 θu (f + xu ) + (1 − d)D2 θa (f + xa ) = φ2 + g1 xu + g2 xa = φ2 + X2 (2)
The phrases added to ci represent the fuel cost imposed on FTSi for carrying one unit of demand from the origin to the destination. In
Eq. (2), the first added part is the fuel cost in road segments, and the second one is that of the rail segment. The values (f + xu) and (f +
xa) are the after-tax cost of one unit of fuel applied in truck and train, respectively.
For FTSi (i = 1, 2), transportation demand qi depends on its own price pi and the price associated with its competing system. The
demand is assumed to be a linear function of transportation prices, with respect to self-price and cross-price sensitivities. The linear
demand function is common in the related literature (Adler et al., 2021; Anderson and Bao, 2010; Chen and Wang, 2015; Choi, 1991;
Edirisinghe et al., 2011; Hafezalkotob, 2018; Jeuland and Shugan, 1983; Li et al., 2016; Pan et al., 2010; Xiao and Yang, 2008; Xie,
2015; Zhao et al., 2017). Thus, the transportation demands of FTS1 and FTS2 are expressed as follows, respectively:
q1 (xa , xu ) = A1 − βp p1 (xa , xu ) + γp p2 (xa , xu ) (3)
q2 (xa , xu ) = A2 − βp p2 (xa , xu ) + γp p1 (xa , xu ) (4)
Generally, having a relatively higher market base of FTSi (i.e. a positive value of Ai − Aj), or bearing a relatively lower basic trans
portation cost (i.e. a negative value of ϕi − ϕj), provides a positive competitive advantage of FTSi over FTSj. This article investigates the
effect ofthe competitive advantages of the FTSs on the equilibrium outcomes of different government policies. Finally, the profit
function for each one of the FTSs is obtained as follows:
π1 (xa , xu ) = (p1 (xa , xu ) − c1 (xu ))q1 (xa , xu ) (5)
π2 (xa , xu ) = (p2 (xa , xu ) − c2 (xa , xu ))q2 (xa , xu ) (6)
4.2. The government policies
In order to establish sustainable freight transportation, the government must adopt comprehensive policies with respect to sus
tainability. In this article, three government considerations regarding the environmental, economic, and social perspectives are
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assessed for establishing sustainability. In Section 1, some information has been provided about the role of governments in sustainable
freight transportation. Here, more details are presented.
For the economic considerations of sustainability, the competing systems FTS1 and FTS2 may expect minimum acceptable profits
M1 and M2, respectively. These profits may originate from economic expectations in exchange for their initial investments. Evidently, if
economic activities do not satisfy the rate of return requested by a transportation system, it will no longer survive in the competitive
transportation market (Adler, 2001). Therefore, the values of M1 and M2 can be estimated by using data from the investments of the
FTSs and their expected rates of return. For the environmental consideration, some governments have focused on reducing total fuel
consumption. The reduction may originate from future shortages in fossil fuels or international agreements, such as the Paris
Agreement. The government may minimize total fuel consumption or to consider a maximum acceptable fuel consumption F for the
transportation market. For example, the European Union (EU) has adopted a policy to reduce fuel consumption from 1800 million tons
of oil equivalent (Mtoe) per year in 2005 to approximately 1600 Mtoe per year in 2020 (Wesselink et al., 2010). For a social
consideration, as mentioned in Section 1, the government aims to focus on the consumer surplus indicator. For example, a subsidy
program from the Chinese government could increase consumer surplus by 39% (Xiao et al., 2020).
Two government policies are investigated. In the first policy, the government focuses on environmental sustainability (Subsection
4.2.1). In the second one, it focuses on social sustainability (Subsection 4.2.2).
4.2.1. Policy 1: environmental sustainability

A government with an environmental sustainability policy seeks to minimize total fuel consumption (TFC) in freight transportation.
The value of TFC is obtained as follows.
TFC(xa , xu ) = q1 (xa , xu )D1 θu + q2 (xa , xu )D2 (dθu + (1 − d)θa ) = ω1 q1 (xa , xu ) + ω2 q2 (xa , xu ) (7)
The first term is total fuel consumed in FTS1, and the second term is of FTS2. In this policy, the minimum acceptable profits of FTS1 and
FTS2 must be satisfied. Otherwise, they exit the competitive transportation market. Consequently, the policy is modelled as follows:
minTFC(xa , xu )
xa ,xu
subjectto : π i (xa , xu ) ≥ Mi ∀i ∈ {1, 2} (8)
4.2.2. Policy 2: social sustainability

The government may adopt a policy that leads to social sustainability. Based on Policy 2, taxes xa and xu are determined to
maximize social welfare. In order to quantify this policy, the concept of consumer surplus is applied, similar to Besanko and Cui (2016),
Chen et al. (2016) and Hafezalkotob (2017). This concept is defined as the difference between what consumers are willing to pay for
transportation prices and what they actually pay (Mancuso, 2014; Szeto et al., 2015). According to the demand functions of both
competing systems and the common formulation in the literature, total consumer surplus (TCS) is formulated as follows:
A1 +p2 (xa ,xu )γp A2 +p1 (xa ,xu )γ p
∫ βp
∫βp
( ) ( )
TCS(xa , xu ) = A1 − βp x + γp p2 (xa , xu ) dx + A2 − βp x + γp p1 (xa , xu ) dx (9)
p1 (xa ,xu ) p2 (xa ,xu )
The first and second terms are the consumer surplus associated to FTS1 and FTS2, respectively. In this policy, the minimum acceptable
profits of FTS1 and FTS2, and the maximum acceptable fuel consumption must be satisfied. Therefore, this policy is modelled as follows:
MaxTCS(xa , xu )
subject to:
TFC(xa,xu≤F
πi (xa , xu ) ≥ Mi ∀i ∈ {1, 2} (10)
5. Competition between the FTSs
This section uses the backward induction methodology to obtain the equilibrium solutions. First, the best response strategies of the
competing systems FTS1 and FTS2 are analyzed, where fuel taxes xa and xu are given. Under the Nash game approach, equilibrium
prices p1 and p2 are obtained. Then, according to the Stackelberg game approach, the effects of government policies on the competitive
transportation market are assessed. The equilibrium government taxes xa and xu are achieved regarding the two government policies.
5.1. The equilibrium outcomes of the competition
In the Nash game approach, competing systems FTS1 and FTS2 (as the agents) have the same decision-making power, in a sense that
they make their decisions p1 and p2 simultaneously. The model presenting the competition under the non-cooperative Nash game
structure is as follows:
279
{
maxπ1 (p1 , p2 )
(11)
p1
maxπ2 (p1 , p2 )
p2
Proposition 1 obtains the equilibrium results of competition between the two competing systems.
Proposition 1. The equilibrium values of the transportation prices, transportation demands, and profits of FTS1 and FTS2 in the Nash game
structure are obtained as follows.
( ) ( )
2βp A1 + c1 (xu )βp + A2 + c2 (xa , xu )βp γp
p*1 (xa , xu ) = 2
(12)
4βp − γ2p
( ) ( )
2βp A2 + c2 (xa , xu )βp + A1 + c1 (xu )βp γp
p*2 (xa , xu ) = (13)
4β2p − γ2p
( ( ))
βp 2A1 βp + A2 γp + c2 (xa , xu )βp γp − c1 (xu ) 2β2p − γ 2p
q*1 (xa , xu ) = (14)
4β2p − γ 2p
( ( ))
βp 2A2 βp + A1 γp + c1 (xu )βp γ p − c2 (xa , xu ) 2β2p − γ 2p
q*2 (xa , xu ) = (15)
4β2p − γ 2p
( ( ))2
βp 2A1 βp + A2 γ p + c2 (xa , xu )βp γp − c1 (xu ) 2β2p − γ 2p
π *
1 (xa , xu ) = ( )2 (16)
4β2p − γ 2p
( ( ))2
βp 2A2 βp + A1 γ p + c1 (xu )βp γ p − c2 (xa , xu ) 2β2p − γ 2p
π*2 (xa , xu ) = ( )2 (17)
4β2p − γ 2p
According to Eqs. (14)-(17), it can be easily verified that:

( * )2
qi (xa , xu )
*
πi (xa , xu ) = ∀i ∈ {1, 2} (18)
βp
According to Eq. (18), the equilibrium profits of FTSs depend on the second power of their equilibrium demands. In addition, after
replacing q*1 and q*2 from Eqs. (14) and (15) into Eq. (7), the equilibrium value of TFC is obtained as follows:
( ( ) ( ))
βp ω1 2A1 βp + A2 + c2 (xa , xu )βp γp − c1 (xa ) 2β2p − γ2p
TFC* (xa , xu ) = ω1 q*1 (xa , xu ) + ω2 q*2 (xa , xu ) = +
4β2p − γ2p
( ( )) (19)
( )
βp ω2 2A2 βp + A1 + c1 (xa )βp γp − c2 (xa , xu ) 2β2p − γ2p
4β2p − γ2p
After replacing p*1 and p*2 from Eqs. (12) and (13) into Eq. (9), the equilibrium value of TCS is obtained as follows:
( ( ) ( ))2 ( ( ) ( ))2
βp 2A1 βp + A2 + c2 (xa , xu )βp γp − c1 (xa ) 2β2p − γ 2p βp 2A2 βp + A1 + c1 (xa )βp γp − c2 (xa , xu ) 2β2p − γ2p
TCS* (xa , xu ) = ( )2 + ( )2
2 4β2p − γ 2p 2 4β2p − γ2p
(20)
Corollary 1 shows a link between the profits of FTSs and the total consumer surplus indicator.
Corollary 1. The value of TCS*(xa,xu) is equal to the average value of π*1 (xa , xu ) and π*2 (xa , xu ), i.e., the following equation holds:
( * )2 ( * )2
q + q2 π * (xa , xu ) + π*2 (xa , xu )
TCS* (xa , xu ) = 1 = 1 (21)
2βp 2
5.2. A preliminary analysis on the government policies
Since fuel taxes xa and xu directly affect transportation costs c1 and c2, this subsection is devoted to understanding how changes in
these costs affect the equilibrium outcomes of competition between the FTSs. Such an analysis can further help us justify the taxing
280
policies of the government.

Corollary 2. The equilibrium demand of an FTS is decreasing in its own transportation cost and increasing in the rival’s cost (Eqs. (22) and
(23)). Also, the sensitivity to its own transportation cost is higher than the one to the rival’s cost (Eq. (24)).
( )
∂q*i βp 2β2p − γ2p
=− < 0 ∀i ∈ {1, 2} (22)
∂ci 4β2p − γ 2p
∂q*j β2p γ p
= 2 > 0 ∀i, j ∈ {1, 2}, i ∕
=j (23)
∂ci 4βp − γ2p
( )
⃒ * ⃒ β 2β2 − γ 2
⃒∂qi ⃒ p p p β2p γ p ∂q*j
⃒ ⃒=
⃒ ∂c ⃒ 2
> 2 = ∀i, j ∈ {1, 2}, i ∕
=j (24)
i
2
4βp − γp 4βp − γp ∂ci
2
When transportation cost ci changes, the behaviors of consumers can be explained according to Corollary 2. With one unit decrease in
βp (2β2p − γ2p )
ci, there is a number of 4β2p − γ2p
new consumers that are attracted to FTSi, as a result of an increase in its competitive advantage. These
β2p γp
new consumers can be classified into two groups: shifting consumers and new market entrants. There is a number of 4β2p − γ2p
shifting
consumers, which shift their service provider from FTSj to FTSi, according to Eq. (24). The new market entrants are the consumers that
had been previously outside the transportation market, but an increase in the competitive advantage of FTSi persuades them to get its
service. The size of the second group is equal to:
( ) ( )
⃒ *⃒ ( )
⃒∂qi ⃒ ∂q*j βp 2β2p − γ2p β2p γ p βp 2β2p − γ2p − βp γp β p βp − γ p
⃒ ⃒−
⃒ ∂c ⃒ ∂c = 4β2 − γ 2 − 4β2 − γ2 = 2
= > 0 ∀i, j ∈ {1, 2}, i ∕
=j (25)
i i p p p p 4βp − γ 2p 2βp − γp
β2 γ
Similarly, with one unit increase in ci, a group consisting of 4β2p− pγ2 consumers shifts their service provider from FTSi to FTSj, and another
p p
group consisting of 2βp − γp consumers of FTSi leaves the transportation market. Based on the analysis in Corollary 2, the effectiveness of
βp (βp − γp )
taxes and subsidies on total fuel consumption is addressed in Corollary 3 by comparing two government policies: (a) imposing higher
total tax on FTS1 that results in one unit increase in c1, and (b) providing higher total subsidy for FTS2 that results in one unit decrease
in c2.
Corollary 3. To decrease total fuel consumption (TFC*), adoption of policy (a) is more effective than adoption of policy (b).
(( ) )
∂TFC* βp 2β2p − γ 2p ω1 − βp γ p ω2
=− <0 (26)
∂c1 4β2p − γ2p
( ( ) )
2 2
∂TFC* βp βp γp ω1 − 2βp − γp ω2
= 2
(27)
∂c2 2
4βp − γp
( )
∂TFC* ∂TFC* βp βp − γp (ω1 + ω2 )
− − = >0 (28)
∂c1 ∂c2 2βp − γp
The total effects of the two policies on the behaviors of consumers are explained based on Corollary 2 and Corollary 3. By adopting
policy (a), two different behaviors of consumers occur, both of which reduce total fuel consumption. A group consisting of
βp (βp − γp )
2βp − γp
β2p γp
consumers leaves the transportation market, which reduces fuel consumption. In addition, another group consisting of 4β2p − γ2p
con
sumers shifts from FTS1 to FTS2, which leads to a net decrease of ω1 − ω2 per consumer in fuel consumption.
β2 γ
In contrast, adoption of policy (b) results in opposite effects in fuel consumption. Similar to policy (a), a group of 4β2p− pγ2 consumers
p p
shifts from FTS1 to FTS2. However, another group of consumers enters the transportation market and chooses FTS2, which leads
βp (βp − γp )
2βp − γp
to an increase in fuel consumption. By comparing the consumers’ exit in policy (a) and their entrance in policy (b), the higher
effectiveness of policy (a) with respect to total fuel consumption can be concluded.
A unilateral tax on FTS1 seems appropriate from an environmental perspective according to Corollary 3. However, it may affect
economic sustainability, i.e., the profitability of the FTSs. Therefore, a reasonable policy for FTS2 must also be joined to the tax policy
of FTS1, to care the profits of the FTSs. Moreover, the environmental effect of these joint policies should be evaluated. Corollary 4
addresses these issues.
Corollary 4. Simultaneous taxes on both FTSs
Policy (c): One unit of increase in c1, followed by y units of increase in c2 (0 < y < 1), keeps the profit of FTS2 unchanged, while reduces the
281
profit of FTS1. Policy (d): One unit of increase in c1, followed by z units of increase in c2 (z > 1), keeps the profit of FTS1 unchanged, while
reduces the profit of FTS2. Both policies (c) and (d) reduce total fuel consumption (TFC*). The values of y and z are equal to:
βp γ p
y= ∈ (0, 1) (29)
2β2p − γ2p
2β2p − γ 2p
z= >1 (30)
βp γ p
According to Corollary 4, stringent taxing policies on both FTSs, i.e. high values of total taxes or low values of total subsidies, are
consistent with environmental sustainability. Although these policies seem reasonable for the non-green FTS (FTS1), they need to be
justified for the green one (FTS2). Corollary 2 and Corollary 3 revealed that the entrance of new consumers to the market may degrade
the effectiveness of a subsidy policy for FTS2. In contrast, implementing stringent taxing policies on both FTSs does not lead to an
entrance of new consumers and, therefore, is appropriate from an environmental perspective.
Corollary 4 also implies that a solution consisting of stringent taxes on both FTSs may partially balance the FTSs’ profits. Therefore,
this solution may be appropriate for alleviating adverse economic impacts of environmental considerations. To achieve such a balance
in the transportation market, Corollary 4 indicates that different scenarios of tax discrimination may exist. In Subsection 7.2, the
mediating role of competitive advantages in the tax discrimination between the FTSs is revealed.
6. The optimal government policies
In this article, the government, as the Stackelberg leader, intervenes in the competitive transportation market, while both FTS1 and
FTS2 act as the followers. According to this dynamic game structure, the government determines the values of xa and xu. Subsequently,
the followers make their decisions on p1 and p2, see Fig. 2.
6.1. The equilibrium solutions for policy 1: environmental sustainability
The environmental sustainability policy is presented in the optimization problem in Eq. (8). Proposition 2 obtains the equilibrium
decisions of the government if it adopts environmental sustainability.
Proposition 2. Under the environmental sustainability policy, the equilibrium values of the decisions made by the government (x*a and x*u )
and the equilibrium value of TFC, are as follows:
⎛ ⎞
3/2 √̅̅̅̅ √̅̅̅̅ 2 2
A1 βp − M2 βp γ p − M1 (2βp − γ p )
⎜ A2 γ p + √ ̅̅̅ ⎟
⎜ βp ⎟
⎜φ1 − ⎟g1
√̅̅̅
̅ ̅̅̅̅
̅ ̅̅̅̅
̅ ⎜ 2 2
βp − γp ⎟
3/2 √ √
A2 βp +A1 βp γp − M1 βp γp − M2 (2β2p − γ2p ) ⎝ ⎠
√̅̅̅̅ 2 2 − φ2
βp (βp − γp )
*
xa = + (31)
g2 ω1 g2
3/2 √̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅
A1 βp +A2 βp γp − M2 βp γp − M1 (2β2p − γ2p )
√̅̅̅̅ 2 2 − φ1
βp (βp − γp )
x*u = (32)
ω1
√̅̅̅̅̅(√̅̅̅̅̅̅ √̅̅̅̅̅̅ ) M1 + M2
TFC* = βp M1 ω1 + M2 ω2 , TCS* = (33)
2
Corollary 5. The equilibrium values of prices, costs, profit margins, demands, and profits of the FTSs under the environmental sustainability
policy are presented in Table 1.
Table 1
The equilibrium outcomes under the environmental sustainability policy.
Outcome FTS1 (i = 1) FTS2 (i = 2)
√̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅
p*i A1 βp + A2 γp − β p ( M1 β p + M2 γ p ) A 2 βp + A 1 γ p − βp ( M2 βp + M1 γp )
β2 − γ2p β2 − γ2p
√̅̅̅̅̅ p √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ 2 √̅̅̅̅̅ p √ ̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ 2
c*i A1 β3/2
p + A2 βp γ p − M2 β p γ p − M1 (2βp − γ2p ) A2 β3/2
p + A1 βp γ p − M1 βp γp − M2 (2βp − γ2p )
√̅̅̅̅̅ 2 2
√̅̅̅̅̅ 2 2
√̅̅̅̅̅̅̅ βp (βp − γp ) √̅̅̅̅̅̅̅ βp (βp − γp )
p*i − c*i M1 M2
βp βp
√̅̅̅̅̅̅̅̅̅̅̅̅
̅ √̅̅̅̅̅̅̅̅̅̅̅̅
̅
q*i M1 β p M2 βp
π*i M1 M2
282
6.2. The equilibrium solutions for policy 2: social sustainability
The social sustainability policy is presented in the optimization problem in Eq. (10). Proposition 3 obtains the equilibrium decisions
of the government if it adopts social sustainability.
√̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅
Proposition 3. The social sustainability policy has a feasible solution if and only if: F ≥ βp ( M1 ω1 + M2 ω2 ). Under this policy, the
equilibrium values of the decisions made by the government (x*a and x*u ), and the equilibrium value of TCS are as follows:
√̅̅̅̅̅ √̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅
√̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ βp ( M1 ω1 − M2 ω2 )(ω21 +ω22 )
a) If M M1
2
< ω2
ω1 < 1 and β p ( M 1 ω1 + M 2 ω 2 ) ≤ F ≤ ω2 − ω2
hold, the following results are obtained:
1 2
(√̅̅̅̅̅̅̅̅̅̅̅ )(( 2 ) ) √̅̅̅̅̅̅̅̅̅̅̅ ( )

F− M 1 β p ω1 2βp − γ2p ω1 − βp γp g1 M1 βp γ p + β2p − γ2p φ2 − A2 βp − A1 γp
x*a = ( ) + ( )
βp γ2p − β2p ω1 ω2 g2 γ2p − β2p g2
( √̅̅̅̅̅̅ ( 2 ) √̅̅̅̅̅ ( ( ) ))
g1 A1 β3/2
p − M1 2βp − γ2p + βp A2 γ p − β2p − γ2p φ1
+ √̅̅̅̅̅( 2 ) (34)
βp γp − β2p ω1 g2
√̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅

(A1 β3/2
p +A2 βp γ p − M1 (2β2p − γ2p ))ω2 + M1 βp γp ω1 −
√̅̅̅̅ 2 2
βp γp F
βp (βp − γp )ω2
− φ1
x*u = (35)
ω1
⎛ ⎞2
√F̅̅̅− √̅̅̅̅
̅
M1 ω1
⎜ βp ⎟
M1 + ⎜
⎝ ω2
⎟
⎠
M1 + M2
TCS* = ≥ , TFC* = F (36)
2 2
b) Otherwise, the following results are obtained:

(( ) ( ) ) ( )
β3p ω1 (φ1 g1 − φ2 ω1 ) − Fγ2p g1 γp ω1 A1 + γ p φ2 ω1 − A2 + γ p φ1 g1 − F + βp A2 ω21 + (2F − A1 ω1 )g1
x*a = ( ) + ( )
βp β2p − γ 2p ω21 g2 β2p − γ2p ω21 g2
√̅̅̅̅̅̅( ( ) ( ))
M2 βp γp ω1 (g1 + ω2 ) − 2β2p ω21 + g1 ω2 + γ 2p ω21 + g1 ω2
+ (
√̅̅̅̅̅ 2 ) (37)
βp βp − γ2p ω21 g2
√̅̅̅̅̅ 3/2 √̅̅̅̅̅̅̅̅

Fγ2p +(A1 β2p +A2 βp γp − M2 βp γp )ω1 + M2 βp (2β2p − γ2p )ω2 − 2Fβ2p
βp (β2p − γ2p )ω1
− φ1
x*u = (38)
ω1
⎛ ⎞2
√F̅̅̅− √̅̅̅̅
̅
M2 ω2
⎜ βp ⎟
M2 + ⎜
⎝ ω1
⎟
⎠
M1 + M2
TCS* = ≥ , TFC* = F (39)
2 2
Corollary 6. The equilibrium values of prices, costs, profit margins, demands, and profits of the FTSs under the environmental sustainability
policy are presented in Table 2.
Table 2
The equilibrium outcomes under the social sustainability policy.
√̅̅̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅
Outcome M2 ω 2 βp ( M1 ω1 − M2 ω2 )(ω21 + ω22 ) ω2 M2 βp ( M1 ω 1 − M2 ω2 )(ω21 + ω22 )
< < 1 and F ≤ ≤ or F >
M1 ω 1 ω1 − ω22
2 ω1 M1 ω1 − ω22
2
√̅̅̅̅̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅
p*1 (A1 − M1 βp )βp ω2 + γp ( M1 βp ω1 + A2 ω2 − F) (A2 − M2 βp )γp ω1 + βp ( M2 βp ω2 + A1 ω1 − F)
(β2p − γ2p )ω2 √̅̅̅̅̅̅̅̅̅̅̅ (β2p − γ2p )ω1√̅̅̅̅̅̅̅̅̅̅̅
√̅̅̅̅̅̅̅ 3/2 √̅̅̅̅̅̅̅̅̅̅̅
p*2 M1 βp ω1 + (A2 βp + (A1 − M1 βp )γp )ω2 − Fβp M2 βp γp ω2 + (A1 γp + (A2 − M2 βp )βp )ω1 − Fγp
(β2p − γ2p )ω2 (β2p − γ2p )ω1
√̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅
c*1 M1 (βp γp ω1 − (2β2p − γ2p )ω2 ) A1 βp ω2 + γp (A2 ω2 − F) M2 ((2β2p − γ2p )ω2 − βp γp ω1 ) βp ω1 (A1 βp + A2 γp ) − F(2β2p − γ2p )
√̅̅̅̅̅ 2 + √̅̅̅̅̅ 2 +
βp (β − γ2p )ω2
√p̅̅̅̅̅̅̅̅̅̅̅ (β2p − √
γ2p̅̅̅̅̅̅̅̅̅̅̅
)ω2 √̅̅̅̅̅̅̅ βp (βp − γ2p )ω1 2 2
√̅̅̅̅̅ βp (βp − γp )ω1
c*2 (2β2p − γ2p )( M1 βp ω1 − F) A2 βp + (A1 − M1 βp )γp M2 (βp γp ω2 − (2β2p − γ2p )ω1 ) − Fγp βp A2 βp + A1 γp
+ √̅̅̅̅̅ 2 +
βp (β2p − γ2p )ω2 β2p − γ2p βp (βp − γ2p )ω1 β2p − γ2p
(continued on next page)
283
Table 2 (continued )
√̅̅̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅
Outcome M2 ω 2 βp ( M1 ω1 − M2 ω2 )(ω21 + ω22 ) ω2 M2 βp ( M1 ω 1 − M2 ω2 )(ω21 + ω22 )
< < 1 and F ≤ ≤ or F >
M1 ω 1 ω21 − ω22 ω1 M1 ω21 − ω22
√̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅
p*1 − c*1 M1 F− M2 βp ω2
βp β ω1
√̅̅̅̅̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ p
p*2 − c*2 F− M1 βp ω1 M2
βp ω2 βp
√̅̅̅̅̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅
q*1 M1 β p F− M2 βp ω2
√̅̅̅̅̅̅̅̅̅̅̅ ω1
√̅̅̅̅̅̅̅̅̅̅̅
q*2 F− M1 βp ω1 M2 β p
ω2 √̅̅̅̅̅̅̅̅̅̅̅
π*1 M1 (F − M2 βp ω2 )2
≥ M1
βp ω21
√̅̅̅̅̅̅̅̅̅̅̅
π*2 (F − M1 βp ω1 )2 M2
≥ M2
βp ω22
TFC* F F
7. Sensitivity analyses
Sensitivity analyses on a wide variety of parameters can help us respond to the research questions and provide some managerial
insights. Table 3 depicts some information about each subsection.
Some of the analyses are based on Table 4 and Table 5. According to Eq. (33), the sensitivities of TFC* and TCS* under an envi
ronmental sustainability policy are provided in Table 4. Also, according to Eqs. (36) and (39), the sensitivities of TFC* and TCS* under
Table 3
Information about sensitivity analyses in the subsections of Section 7.
Subsection Investigated parameters Answered question(s) Intervention status
With government intervention Without government intervention
7.1 M1,M2,F Question 1 ✔ ✘

7.2 A1,A2,ϕ1,ϕ2 - ✔ ✘
7.3 A1,A2,ϕ1 Question 2 ✔ ✔
ϕ2,βp,γp
7.4 A1,A2 Question 3 ✔ ✘
7.5 ω1,ω2 Question 4, Question 5 ✔ ✔
Table 4
Sensitivities of TFC* and TCS* to some parameters in the environmental sustain
ability policy.
Sensitivity to M1, βp, and ω1 Sensitivity to M2, γp, and ω2
√̅̅̅̅̅ √̅̅̅̅̅
∂TFC* βp ω1 ∂TFC* βp ω2
= √̅̅̅̅̅̅̅ > 0 = √̅̅̅̅̅̅̅ > 0
∂M 1 2 ̅̅̅̅̅̅
√ M̅ 1 √̅̅̅̅̅̅̅ ∂M 2 2 M2
∂TFC* M1 ω1 + M2 ω2 ∂TFC*
= √̅̅̅̅̅ >0 =0
∂βp 2 βp ∂γ p
∂TFC* √̅̅̅̅̅̅̅̅̅̅̅ ∂TFC* √̅̅̅̅̅̅̅̅̅̅̅
= β p M1 > 0 = βp M2 > 0
∂ω1 ∂ω2
∂TCS* ∂TCS*
=0 =0
∂ω1 ∂ω2
Table 5
Sensitivities of TFC* and TCS* to some parameters in the social sustainability policy.
Sensitivity under Sensitivity under
√̅̅̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅
M2 ω2 βp ( M1 ω1 − M2 ω2 )(ω21 + ω22 ) ω2 M2 βp ( M1 ω1 − M2 ω2 )(ω21 + ω22 )
< < 1 and F ≤ ≤ or F >
M1 ω1 ω1 − ω22
2 ω1 M1 ω1 − ω22
2
√̅̅̅̅̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅
∂TCS* F − M1 β p ω 1 M2 βp ω2 ∂TCS* F − M2 βp ω2 M1 βp ω1
= ≥ >0 = ≥ >0
∂F 2
βp ω2√̅̅̅̅̅̅̅̅̅̅̅ βp ω22 √̅̅̅̅̅̅̅̅̅̅̅ ∂F 2
βp ω1√̅̅̅̅̅̅̅̅̅̅̅ βp ω21 √̅̅̅̅̅̅̅̅̅̅̅
∂TCS* F(F − M1 βp ω1 ) F M2 βp ω2 ∂TCS* F(F − M2 βp ω2 ) F M1 βp ω1
= − ≤ − <0 = − ≤ − <0
∂β p 2β2p ω22 2β2p ω22 ∂β p 2β2p ω21 2β2p ω21
∂TCS* ∂TCS*
=0 =0
∂γ p √̅̅̅̅̅̅̅ √̅̅̅̅̅̅̅̅̅̅̅ ∂γ p √̅̅̅̅̅̅̅̅̅̅̅
∂TCS* M1 (F − M1 β p ω 1 ) ∂TCS* (F − M2 βp ω2 )2
= − √̅̅̅̅̅ <0 = − <0
∂ω1 ω22 βp ∂ω1 √̅̅̅̅̅̅̅ βp ω√
3
1 ̅̅̅̅̅̅̅̅̅̅̅
√̅̅̅̅̅̅̅ √̅̅̅̅̅
∂TCS * (F − M1 βp ω1 ) 2
∂TCS * M 2 (F − M β
2 p 2) ω
= − <0 = − √̅̅̅̅̅ <0
∂ω2 βp ω32 ∂ω2 ω21 βp
*
∂TFC ∂TFC*
=0 =0
∂ω1 ∂ω2
284
a social sustainability policy are provided in Table 5.
7.1. An analysis on environmental regulations and the economic expectations of the FTSs
In this article, the FTSs’ profits, total fuel consumption (TFC), and total consumer surplus (TCS) represent economic, environ
mental, and social sustainability, respectively. Also, it seems that the intermodal system FTS2 can potentially contribute to environ
mental sustainability because it includes rail transportation, as a green mode.
According to Table 4, the equilibrium value of total fuel consumption TFC* is increasing in the minimum acceptable profits of FTS1
and FTS2, i.e., M1 and M2, respectively. This indicates that environmental sustainability is in conflict with economic sustainability. It is
worth noting that even higher minimum acceptable profits of the green FTS (FTS2) increases environmental externalities. The rationale
behind this claim is that higher values of M2 stimulate FTS2 to absorb new consumers (see Eq. (18)), which leads to a net increase in
total fuel consumption. In addition, decreasing the economic expectation of the non-green FTS (FTS1) has more priority over FTS2
because of the higher fuel consumption rate of FTS1. Given a fixed value of total economic expectations, i.e. M1 + M2, Eq. (33) shows
that the less economic expectation of FTS1 is, the less total fuel consumption TFC* is achieved. In contrast, according to Corollary 1,
social sustainability is fully consistent with economic sustainability, because TCS is directly and linearly increasing in the profits of
FTSs
The above-mentioned result suggests that the government with an environmental point of view can adopt an indirectly induced
intervention. It should adopt policies that decrease the economic expectations of all transportation systems, especially the road
system. As an example of such policies, Basu (2017) points out that different types of economic risks, including volatility in reg
ulations, the evolution of new technologies, the risk of rising in prices of raw materials, currency fluctuations, etc., have a positive
relationship with the rate of return requested by investors. Therefore, the appropriate management of such risks can greatly
contribute to environmental sustainability because it decreases the minimum acceptable profits of the FTSs, leading to a lower value
of total fuel consumption.
According to Table 5, the equilibrium amount of total consumer surplus (TCS*) is always increasing in maximum acceptable fuel
consumption (F). Hence, environmental sustainability is in conflict with social sustainability. This suggests that stricter environmental
regulations (lower values of F) can result in a significant social side-effect: the stricter the environmental regulations are, the less social
sustainability can be achieved.
The analyses are summarized in Managerial insight 1 and Fig. 4 and can respond to Question 1.
Managerial insight 1. The economic and social sustainability policies of the government are consistent with each other, while both of them
are in conflict with the environmental sustainability policy.
Fig. 4. Interactions between the three dimensions of sustainability.
285
7.2. An analysis on the tax discrimination between the FTSs
Proposition 4 investigates the conditions in which FTSi incurs less equilibrium value of total tax (Xi* ) than its rival under the
environmental and social sustainability policies.
Proposition 4. a) Under the environmental sustainability policy, the value of X2* − X1* is negative if and only if:
( √̅̅̅̅̅̅ √̅̅̅̅̅̅ )( )
( ) M2 − M1 2βp + γp
A2 − A1 − βp + γp (φ2 − φ1 ) ≤ √̅̅̅̅̅ (40)
βp
b) Under the social sustainability policy (part (a) of Proposition 3), the value of X2* − X1* is negative if and only if:
( )( √̅̅̅̅̅̅̅̅̅̅̅ )
( ) 2βp + γ p F − (ω1 + ω2 ) M1 βp
A2 − A1 − (φ2 − φ1 ) βp + γ p ≤ (41)
β p ω2
c) Under the social sustainability policy (part (b) of Proposition 3), the value of X2* − X1* is negative if and only if:
( )( √̅̅̅̅̅̅̅̅̅̅̅ )
( ) 2βp + γ p M2 βp (ω1 + ω2 ) − F
A2 − A1 − (φ2 − φ1 ) βp + γ p ≤ (42)
β p ω1
According to Proposition 4, indicator A2 − A1 − (βp + γp)(ϕ2 − ϕ1) is always significant in determining which FTS incurs less equi
librium value of total tax. This indicator can appropriately represent the competitive advantage of FTS2 over FTS1, as mentioned in
Subsection 4.1. According to Subsection 5.2, the government may alleviate the adverse economic impacts of its environmental con
siderations by balancing the profits of the FTSs. According to Proposition 4, such a balance is realized through implementing higher
total tax on an FTS that has a competitive advantage over its rival.
The intermodal system (FTS2) incurs high values of transloading costs during transshipment in rail stations, which increase its basic
transportation costs ϕ2. In contrast, FTS1 benefits from a competitive advantage over FTS2 since it does not incur such costs (Austin,
2015). Accordingly, Proposition 4 predicts that there may exist a tax discrimination in favor of FTS2 due to the transloading costs.
7.3. An analysis on the competitive advantages, competition intensity, and consumers’ loyalty
We investigate the role of parameters γp and βp in the sustainability indicators. According to Subsection 4.1, the value of γ p can
appropriately represent competition intensity between the two FTSs; it measures how many consumers shift from their specific FTS to
the other one if the FTS increases its price. To show the role of competition intensity (γ p), we investigate whether it has a relationship
with the way the FTSs utilize their competitive advantages. Also, a lower value of βp means that the consumers are highly loyal to their
specific FTSs, and do not easily leave them if the FTSs increase their prices. Signing long-term contracts between consumers and their
specific FTSs (Hubbard, 2001; Shah and Brueckner, 2012), and more locational proximity to the consumers’ operational centers (Shah
and Brueckner, 2012) can enhance the consumers’ loyalty.
First, the relationship between competitive advantages and competition intensity is investigated in the case of "without government
intervention" (i.e. xa = xu = 0, c1 = ϕ1,c2 = ϕ2). Corollary 7 shows that an FTS can utilize its competitive advantage to strengthen its
transportation market share.
q*
Corollary 7. Without government intervention, the equilibrium market share of FTSi, i.e. q* +q
i
* , is increasing in ϕj and decreasing in ϕi (i ∕
=
1 2
q*i
j). Moreover, q*1 +q*2
is increasing in Ai or decreasing in Aj, or both. In addition, one unit increase in Ai, followed by one unit decrease in Aj,
q*
increases the value of q* +q
i
* (i ∕
= j).These analyses indicate that the equilibrium market share of FTSi is increasing in its competitive advantage.
1 2
Without government intervention, Corollary 7 indicates that enhancing the competitive advantage of an FTS incentivizes this FTS
to exert more efforts to serve the consumers. This leads to an enhancement in its market share. Hence, it can be deduced that there may
be a relationship between competition intensity (γp) and the way the FTSs utilize their competitive advantages.
Corollary 8. Without government intervention, q*1 , q*2 , TFC*, and TCS* are increasing in γp.
According to Corollary 7 and Corollary 8, without government intervention, higher competition intensity reinforces the efforts of
the FTSs to utilize their competitive advantages, which benefits their consumers, but has adverse environmental impacts.
In the second case, government intervention is investigated. As indicated in Subsection 7.2, to balance adverse economic impacts,
the government counteracts the competitive advantages in the market. This is realized through implementing higher total tax on an
FTS that has an advantage over its rival. It is deduced that enhancing competitive advantages do not any longer induce more efforts of
the FTSs to attract larger market shares. Since the FTSs do not any longer utilize their competitive advantages, it is anticipated that
competition intensity does not play a significant role in the sustainability indicators. Corollary 9 confirms these two claims.
Corollary 9. With government intervention, either environmental or social:
q*
q*i and q* +q
i
* are irrelevant to Ai, Aj, ϕi, ϕj, and γ p (i ∕
= j). Therefore, the equilibrium demand and market share of FTSi are irrelevant to its
1 2
competitive advantage and competition intensity. Moreover, competition intensity is irrelevant to sustainability indicators TFC* and TCS*.
Therefore, when the government intervenes in the market, strategies that enhance the competitive advantage of an FTS are not
286
effective to improve the market share and profitability of that FTS. Instead, Corollary 10 shows the role of the consumers’ loyalty in the
sustainability dimensions, and the market share and profitability of the FTSs. Under the social sustainability policy, Corollary 10
indicates that one of the FTSs can improve its market share and profitability through adopting initiatives that enhance the consumers’
loyalty.
Corollary 10. With government intervention:
• Under the environmental sustainability policy, consumers’ loyalty is irrelevant to the equilibrium market shares and profits of the FTSs.
• Under the social sustainability policy, enhancement of consumers’ loyalty improves the equilibrium values of demand, market share, and
profit for only one of the two FTSs (i.e. FTS2 in part (a) of Proposition 3 and FTS1 in part (b) of Proposition 3).
• According to Table 4 and Table 5, TFC* and TCS*are increasing and decreasing in βp, respectively. Therefore, the enhancement of the
consumers’ loyalty simultaneously improves all the three dimensions of sustainability.
Managerial insight 2 summarizes the analyses and responds to Question 2.

Managerial insight 2. With government intervention, the enhancement of the consumers’ loyalty to their specific FTSs improves the three
dimensions of sustainability, while the intensity of competition between the FTSs is irrelevant to these dimensions.
7.4. An analysis on the market bases
Subsection 5.2 implies that for a government with an environmental point of view, new market entrants may restrict the policy
options of the government. In addition, Subsection 7.3 indicates that, under government intervention, the FTSs cannot improve their
profits and transportation market shares by extending their market bases. Nevertheless, this subsection shows that the government can
benefit from the new market entrants and market base extensions to exempt from subsidy payment, without any adverse effects on
sustainability.
The intermodal system (FTS2) can enhance its services through different solutions like the extension of transportation capacity,
better fleet scheduling, the promotion of transloading facilities, etc. By applying such solutions, its market base A2 will be extended. A
part of this extension is provided from consumers within the market base A1 that shift from FTS1 to FTS2; while, the other part is
associated with new market entrants.
We define parameter k (0 < k < 1) as the value of reduction in A1 due to a unit increase in A2, see Fig. 5. When services offered by
FTS2 are enhanced, parameter k measures the ratio of new potential consumers attracted by FTS2 that are provided from the potential
consumers of FTS1. The value of k can be estimated using a questionnaire. It should be distributed between all consumers in the nation
that often get transportation services. If a consumer does not get services offered by FTS2, it should respond to these questions: Does it
often get services offered by FTS1? Does it follow news about FTS2? If so, is it willing to get services offered by FTS2 if FTS2 enhances its
services? The value of k can be estimated by calculating the ratio of consumers that responded "Yes" to all the three questions with
respect to total consumers that responded "Yes" to the latter two questions.
Proposition 5 investigates how the improvement of services offered by FTS2 can affect the equilibrium values of fuel taxes.
Proposition 5. For both social and environmental sustainability policies of the government, the following results are obtained:
∂x*a ∂x*
− k a > 0 ∀k ∈ (0, 1) (43)
∂A2 ∂A1
( ] ( ]
∂x*u ∂x* γp ∂x*u ∂x* γp
− k u ≥ 0 : ∀k ∈ 0, , − k u < 0 : ∀k ∈ ,1 (44)
∂A2 ∂A1 β p ∂ A2 ∂A1 βp
∂π*1 ∂π*1 ∂π*2 ∂π *2 ∂π* ∂π* ∂π* ∂π*

= = = = 0 ⇒ 1 − k 1 = 2 − k 2 = 0 ∀k ∈ (0, 1)
∂A1 ∂A2 ∂A1 ∂A2 ∂A2 ∂A1 ∂A2 ∂ A1
∂TFC* ∂TFC* ∂TFC* ∂TFC*

= =0⇒ − k = 0 ∀k ∈ (0, 1)
∂A1 ∂A2 ∂A2 ∂A1
Fig. 5. Interaction between the market bases of the FTSs.
287
∂TCS* ∂TCS* ∂TCS* ∂TCS*

= =0⇒ − k = 0 ∀k ∈ (0, 1) (45)
∂A1 ∂A2 ∂A2 ∂A1
Proposition 5 suggests an indirectly induced government intervention. The government can support FTS2 for enhancing its services.
This support results in an extension in its market base A2, and consequently a reduction in the rival market base A1. According to
Proposition 5, the net effect of these changes may lead to an increase in the government’s revenue from high values of fuel taxes. To
(
achieve this positive effect, the increase in A2 must mainly be provided by new market entrants, not by a reduction in A1, i.e., k ∈ 0,
]
. An appropriate national advertisement may satisfy this requirement (a low value of k). National advertisement increases the
γp
βp
population of all potential consumers that follow news about FTS2 and willingly get its services when improved. Hence, national
advertisement increases the role of new market entrants and thus decreases the role of potential consumers that shift from FTS1 to FTS2,
according to Fig. 5. Managerial insight 3 summarizes the analyses and can respond to Question 3.
Managerial insight 3. Government support for the enhancement of services offered by the intermodal transportation system (FTS2) always
leads to an increase in the fuel tax imposed on the rail mode (x*a ). If the government announces such enhancement through national adver
tisement, the fuel tax imposed on the road mode (x*u ) will also increase. The adoption of these two government initiatives has no negative, nor
positive, impacts on the FTSs’ profits, total fuel consumption, and total consumer surplus. These results are robust under both the environmental
and social sustainability policies of the government.
7.5. An analysis on the fuel consumption rates
The effects of fuel consumption rates (i.e. ω1 and ω2) on the equilibrium values of TFC and TCS are assessed. The FTSs can improve
their energy efficiency, through some solutions like the employment of modern fleets (De Borger and Mulalic, 2012), as mentioned in
Section 1. However, based on the rebound effect phenomenon, such a reduction in ω1 and ω2 may even increase TFC*.3 Proposition 6
addresses the rebound effects.
Proposition 6. Without government intervention (xa = xu = 0, c1 = ϕ1,c2 = ϕ2):
a)q*1 is decreasing in ω1 and increasing in ω2, while q*2 is decreasing in ω2 and increasing in ω1.
b) In Table 6, the conditions indicating the rebound effects of parameter ωi for environmental sustainability (i.e. ∂TFC* ≤ 0) and social
∂ωi
sustainability (i.e. ∂TCS* ≥ 0) are addressed, i ∈ {1, 2}.
∂ωi
The rebound effect means that a decrease in unit fuel consumption leads to an increase in the total fuel consumption (TFC*), or a
decrease in the social sustainability indicator (TCS*). Based on Proposition 6, in the case of "without government intervention", the
energy efficiency improvement of FTSi increases the value of q*i , which may lead to an increase in total fuel consumption, see Eq. (19).
Also, this improvement decreases the value of q*j (j ∕
= i), which may lead to a decrease in total consumer surplus, see Eq. (21). Fig. 6 and
Fig. 7 depict the schematic views of rebound effects on total fuel consumption and total consumer surplus, respectively.
In contrast, government intervention eliminates the rebound effects in the transportation market. According to Table 4 and Table 5,
if the government adopts environmental sustainability, the energy efficiency improvements reduce TFC*, while it has no effect on
TCS*. Furthermore, if the government adopts social sustainability, such improvements increase TCS*, while they have no effect on
TFC*. The effects of energy efficiency improvements of the FTSs are summarized in Managerial insight 4 and Table 7, and can respond
to Question 4 and Question 5.
Table 6
Conditions for the rebound effects1.
The dimension of rebound effect Fuel consumption rate of FTS1 (ω1) Fuel consumption rate of FTS2 (ω2)
⎧ ⎫ ⎧ ⎫ ⎧ ⎫
Environmental sustainability ⎨ ξω2 + M
̃ 2 θω 2 + A
̃1⎬ θω2 − M
̃1 ⎨ ξω + M
1
̃ 1 θω1 + A ̃2⎬ ⎨ θω1 − M
̃ 2⎬
∂TFC* Max ω2 , , ≤ ω1 ≤ Max 0, , ≤ ω2 ≤ Min ω1 ,
( ≤ 0) ⎩ θ ξ ⎭ ξ ⎩ θ ξ ⎭ ⎩ ξ ⎭
∂ωi ⎧ ⎫ ⎧ ⎫ ⎧
∂TCS*
Social sustainability ( ≥ 0)
⎨ ξω2 + M
̃ 2 2ξθω2 − Ã3 ⎬ ⎨ ξω + M
1
̃ 1 2ξθ ω1 − A
̃ 4
⎬ ⎨
∂ωi Max ω2 , , ≤ ω1 ≤ Max 0, , ≤ ω2 ≤ Max ω1 ,
⎩ θ ξ2 + θ2 ⎭ ⎩ θ ξ2 + θ2 ⎭ ⎩
⎫
θω2 − M
̃1
θω 1 − M 2
̃ ⎬
ξ ξ ⎭
1
The new expressions are defined in the appendix section.
3
As in Agrawal and Bellos (2016), we focus on rebound effects whose rates are more than 100%, in which enhancing energy efficiency is totally
harmful to fuel consumption. It almost makes sense in real-world freight transportation markets, especially in developing countries. For example,
Wang and Lu (2014) showed that rebound effects in the freight transportation sector in China may even reach more than 80%.
288
Fig. 6. A schematic view of rebound effects on total fuel consumption.
Fig. 7. A schematic view of rebound effects on total consumer surplus.
Table 7
The effects of energy efficiency improvement of the FTSs.
Government Government Different possible situations TFC* TCS*
Intervention policy for the rebound effect on
TFC* TCS*
Without — ✘ ✘ ↓ ↑
intervention ✔ ✘ ↑ ↑
✘ ✔ ↓ ↓
✔ ✔ ↑ ↓
With Environmental ✘ ✘ ↓ Constant
intervention Social ✘ ✘ Constant ↑
Managerial insight 4. If the government does not intervene in the market, then the energy efficiency improvement of the FTSs may lead to
rebound effects on TFC* and TCS*. In contrast, if the government does intervene in the market, then the rebound effects on both TFC* and TCS*
are effectively eliminated. In this case, the adoption of a policy among environmental and social sustainability, along with the energy efficiency
improvement, leads to an improvement in the outcome of the adopted policy, without any side effect on the outcome of the other policy.
Managerial insight 4 contributes to the literature on rebound effects in two main ways. First, there may exist rebound effects not
only on fuel consumption, but also on the consumer surplus (as an indicator of social sustainability). Second, government intervention
can effectively eliminate the rebound effects.
289
8. A numerical example
A numerical example is provided in this section. The Bushehr port is the location of an important branch of the Iranian customs.
Hence, it is considered as the origin. Tehran, the capital of Iran, is considered as the destination. FTS1 uses the direct road to transport
goods from the origin to the destination. FTS2 is an intermodal system and involves the road transportation mode from the Bushehr
port to Shiraz, and the railway transportation mode from Shiraz to Tehran. The values of the main parameters are provided in Table 8.
The values of the other parameters are calculated based on Table 8. They are provided in Table 9.
Without government intervention, the equilibrium outcomes of the duopoly competition is presented in Table 10. Superscript “WI”
in Table 10 denotes “without intervention”.
To support FTS2, its profit without government intervention is considered equal to its economic expectation, i.e. M2 = πWI 2 . In
addition, the economic expectation of FTS1 is equal to α × 100% of its profit without government intervention, i.e. M1 = απ WI 1 , where
0 < α < 1. Table 11 depicts the equilibrium outcomes of an environmental sustainability policy for three scenarios of α. Superscript
“ES” in Table 11 denotes “Environmental Sustainability”.
The equilibrium outputs in Table 11 are consistent with the results presented in Subsection 5.2. Although stringent taxes are
implemented on both FTSs in the three scenarios, the profit of FTS2 remains unchanged in them. Hence, stringent taxes on both the
Table 8
The main parameters and their values in the numerical example.
Parameter Explanation Value Reference
f The price of diesel fuel in Iran $0.1 per liter (Prices, 2020)
D1 The road distance from Bushehr port (origin) to Tehran (destination) 1068 km (calculator, 2020b)
D2 The road distance from Bushehr port to Shiraz plus the rail distance 288 km+933 km (calculator, 2020a,calculator,
from Shiraz to Tehran 2020c)
θa Fuel usage in the rail mode 7.16 L/103TK(liters per 1000 ton- (de Miranda Pinto et al., 2018)
kilometers)
θu Fuel usage in the road mode 44.5 L/103TK (liters per 1000 ton- (de Miranda Pinto et al., 2018)
kilometers)
c1 and c2 Transloading costs of FTS1 and FTS2 c1 = 0, c2 = 7.5 per ton1 (Austin, 2015; ELARUM,
2020)
A1 Market base of FTS1 1700 tons (on a daily basis) An estimation from market
experts
A2 Market base of FTS2 1650 tons (on a daily basis) An estimation from market
experts
2
βp and γp Self-price and cross-price sensitivities of the demands βp = 1.961, γp = 1.373 (de Rus and Socorro, 2014)
1
According to Austin (2015), the typical transloading cost for intermodal rail-road transportation is about $150 per road container. The capacity of a
150
typical container is about 20 tons (ELARUM, 2020). Hence, the estimated value of c2 is equal to = 7.5 per ton. In contrast, FTS1 does not incur
20
transloading costs (Austin, 2015).
2
In (de Rus and Socorro, 2014), the authors mentioned that there is a degree of product differentiation between unimodal and intermodal trans
portation modes, denoted by δ. They estimated that δ = 0.7 (Pg. 383). Moreover, in a duopoly market with a unimodal and an intermodal trans
portation modes, their results indicate that the demand is linear in the prices and the following relations hold between the sensitivities and parameter
1 δ
δ (Pg. 380): βp = , γp = . Hence, the results presented in this work could be used to estimate the values of βp and γp.
1 − δ2 1 − δ2
Table 9
The values of other parameters in the numerical example.
Parameter d g1 g2 ω1 ω2 ϕ1 ϕ2
Value 288 12.823 6.679 47.526 19.502 4.753 9.450
= 0.236
288 + 933
Table 10
The equilibrium outcomes without government intervention.
Output pWI
1 pWI
2 qWI
1 qWI
2 πWI
1 πWI
2
TCSWI TFCWI
Value $666.44 $658.73 1298 tons 1273 tons $858′ 573 $826′ 693 $842′ 633 86′ 498 Liters
Table 11
The equilibrium outcomes in the environmental sustainability policy.
α xES
a xES
u XES
1 XES
2 pES
1 pES
2 qES
1 qES
2 πES
1 πES
2
TCSES TFCES
0.97 0.86 0.62 29.62 13.74 686.05 672.47 1278 1273 832′ 816 826′ 693 829′ 754 85′ 566
0.95 1.44 1.04 49.62 23.01 699.30 681.74 1264 1273 815′ 644 826′ 693 821′ 169 84′ 937
0.92 2.32 1.68 80.02 37.11 719.44 695.84 1245 1273 789′ 887 826′ 693 808′ 290 83′ 981
290
Table 12
The equilibrium outcomes in the social sustainability policy.
α xSS
a xSS
u XSS
1 XSS
2 pSS
1 pSS
2 qSS
1 qSS
2 πSS
1 πSS
2
TCSSS TFCSS
0.97 0.43 0.31 14.83 6.88 676.26 665.61 1288 1273 845 626′
826 693
′
836 160
′
86′ 032
0.95 0.72 0.52 24.83 11.51 682.88 670.25 1281 1273 836′ 957 826′ 693 831′ 825 85′ 718
0.92 1.16 0.84 40.01 18.56 692.94 677.29 1271 1273 823′ 868 826′ 693 825′ 280 85′ 240
Table 13
The equilibrium outcomes in three situations with respect to government intervention.
υ xva xvu Xv1 Xv2 pv1 pv2 qv1 qv2 πv1 πv2 TCSv TFCv
WI 0 0 0 0 666.44 658.73 1298 1273 858′ 573 826′ 693 842′ 633 86′ 498
ES 0.86 0.62 29.62 13.74 686.05 672.47 1278 1273 832′ 816 826′ 693 829′ 754 85′ 566
SS 0.43 0.31 14.83 6.88 676.26 665.61 1288 1273 845′ 626 826′ 693 836′ 160 86′ 032
FTSs can partially balance adverse economic impacts of an environmental consideration. Moreover, it is interesting to see that
although the rail mode pays higher values of taxes than the road mode, i.e. xES ES
a > xu , FTS2 pays less values of total taxes than FTS1.
Hence, higher taxes on the green transportation mode may be consistent with a tax discrimination in favor of FTS2. The rationale
behind this fact is that the lower fuel consumption rate of the rail mode, i.e. θa < θu, allows the government to implement higher fuel
taxes on it, while the total fuel tax on FTS2 is still lower than total fuel tax on FTS1.
The results in Table 12 show the interactions between the three dimensions of sustainability. The higher economic expectations of
FTS1 are equivalent to higher values of consumer surplus and fuel consumption. Finally, Table 13 compares the three situations for α =
0.97.
According to Table 13, a social sustainability policy is equivalent to lower transportation prices, and lower taxes, compared to the
environmental sustainability policy. Finally, Fig. 8 and Fig. 9 depict the schematic views of the government policies for α = 0.97.
Table 12 depicts the equilibrium outcomes of a social sustainability policy for three values of α. Superscript "SS" in Table 12 denotes
"Social Sustainability". Moreover, in each scenario, the value of F is considered as the average value of the total fuel consumptions in
TFCWI +TFCES
the earlier two situations, i.e. F = 2 .
Fig. 8. The schematic view of environmental sustainability maximization.
291
Fig. 9. The schematic view of social sustainability maximization.
9. Conclusions
Transportation is essential for the sustainable development of countries. Governments adopt policies for improving different
sustainability dimensions in transportation systems, usually by implementing taxes on these systems. Therefore, governments should
extend their knowledge on the interactions between different sustainability dimensions, and how their interventions can affect each
dimension. Accordingly, this article addresses interactions between three sustainability dimensions, within the context of competition
in a duopoly freight transportation market. This article investigates the environmental, social, and economic dimensions of
sustainability.
With regard to the main theme of this article, competition between two freight transportation systems (FTSs), with and without
government intervention, is discussed. These systems include the road and intermodal road-rail systems, i.e. FTS1 and FTS2, respec
tively. The latter is regarded as an environmentally sustainable transportation mode. The government, as the Stackelberg leader,
intervenes in the transportation market by implementing taxes xu and xa on the fuel used in road and rail freight transportation,
respectively. These taxes are determined based on environmental, economic, and social concerns. The government with an envi
ronmental sustainability policy seeks to maximize fuel savings, while the social policy is equivalent to consumer surplus maximization.
Given a fixed level of the consumers’ loyalty to their specific transportation systems, the findings indicate that the environmental
sustainability of freight transportation is in conflict with economic and social sustainability. Therefore, governments face the challenge
of conflicting objectives when they intervene in freight transportation markets. To address this challenge, it is shown that enhancing
consumers’ loyalty simultaneously improves all the three sustainability dimensions.
The findings also indicate that government intervention significantly changes the results of competition between FTS1 and FTS2 in
two main ways. First, without government intervention, the energy efficiency improvements of the FTSs may counterintuitively have
adverse environmental and social effects, called the rebound effects. In contrast, government intervention effectively eliminates such
rebound effects. Second, without government intervention, higher competition intensity between the FTSs reinforces their efforts to
utilize their competitive advantages. Such efforts benefit their consumers, but have adverse environmental impacts. In contrast, with
government intervention, the FTSs’ competitive advantages are balanced by government taxes, and competition intensity becomes
irrelevant to the sustainability indicators.
Along with the direct government intervention, this article suggests two indirectly induced interventions. Paying subsidies is a
challenge of governments when intervening in transportation markets. As the first indirect intervention, government support for the
service enhancement of the intermodal system (FTS2), followed by national advertisement of this system, may exempt the government
from subsidy payment. It is shown that this indirect intervention does not have any adverse effects on the sustainability indicators.
Second, decreasing economic expectations of all transportation systems, especially the road system, contributes to environmental
sustainability. Since economic risks are positively associated with the economic expectations, the appropriate management and
reduction of such risks by the government can greatly contribute to environmental sustainability.
Some other issues in sustainable freight transportation deserve future research. The competitive market can be extended for more
292
than two freight transportation systems. Also, the above-mentioned indirect interventions require further cost-benefit analyses to
assess whether or not to implement them. Finally, the impacts of other government regulations, such as cap and trade systems, on the
sustainability dimensions should be addressed in freight transportation.
CRediT authorship contribution statement
Mohammad Tamannaei: Conceptualization, Methodology, Supervision, Project administration, Writing – original draft, Writing –
review & editing. Hamid Zarei: Conceptualization, Methodology, Software, Formal analysis, Investigation, Data curation, Writing –
original draft, Writing – review & editing. Morteza Rasti-Barzoki: Investigation, Visualization, Supervision.
Acknowledgments
The authors wish to thank the two anonymous reviewers and the editors for their useful comments and suggestions that help greatly
improve the early version of this article.
Supplementary materials
Supplementary material associated with this article can be found, in the online version, at doi:10.1016/j.trb.2021.09.002.
Appendix: definitions of new expressions
θ–
–
– βpγp
ξ ≡ 2β2p − γ 2p
̂ 1 ≡ 2A1 βp + A2 γp
A
̂ 2 ≡ 2A2 βp + A1 γp
A
̂
̃ 1 ≡ A 1 + θc2 − ξc1
A
2f
̂
̃ 2 ≡ A 2 + θc1 − ξc2
A
2f
( 2 )
2 ̂ ̂
̃ 3 ≡ ξ + θ c1 − 2ξθc2 − ξ A 1 + θ A 2
A
f
( 2 )
2 ̂ ̂
̃ 4 ≡ ξ + θ c2 − 2ξθc1 − ξ A 2 + θ A 1
A
f
√̅̅̅̅̅̅ √̅̅̅̅̅̅
̂1 ≡ M1 ( 2 ) ( ) M1 ( 2 )
̂1
M 4βp − γ2p − 2A1 βp + A2 γp = 4βp − γ2p − A
βp βp
√̅̅̅̅̅̅ √̅̅̅̅̅̅
̂2 ≡ M2 ( 2 ) ( ) M2 ( 2 )
̂2
M 4βp − γ2p − 2A2 βp + A1 γp = 4βp − γ2p − A
βp βp
̂
̃ 1 ≡ M 1 − θc2 + ξc1
M
f
̂
̃ 2 ≡ M 2 − θc1 + ξc2
M
f
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Transportation Research Part B

A game theoretic approach to sustainable freight transportation:

transportation to a more efficient and sustainable system.

Fig. 1. Two competing freight transportation systems FTS1 and FTS2.

Fig. 2. The timing of the problem.

Fig. 3. Comparison of fuel consumption rates in FTS1 and FTS2.

4.1. The costs, demands, and profits of the FTSs

c2 (xa , xu ) = c2 + dD2 θu (f + xu ) + (1 − d)D2 θa (f + xa ) = φ2 + g1 xu + g2 xa = φ2 + X2 (2)

q2 (xa , xu ) = A2 − βp p2 (xa , xu ) + γp p1 (xa , xu ) (4)

π2 (xa , xu ) = (p2 (xa , xu ) − c2 (xa , xu ))q2 (xa , xu ) (6)

4.2. The government policies

4.2.1. Policy 1: environmental sustainability

subjectto : π i (xa , xu ) ≥ Mi ∀i ∈ {1, 2} (8)

4.2.2. Policy 2: social sustainability

5. Competition between the FTSs

5.1. The equilibrium outcomes of the competition

According to Eqs. (14)-(17), it can be easily verified that:

5.2. A preliminary analysis on the government policies

policies of the government.

6. The optimal government policies

6.1. The equilibrium solutions for policy 1: environmental sustainability

6.2. The equilibrium solutions for policy 2: social sustainability

(√̅̅̅̅̅̅̅̅̅̅̅ )(( 2 ) ) √̅̅̅̅̅̅̅̅̅̅̅ ( )

√̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅̅ √̅̅̅̅

b) Otherwise, the following results are obtained:

√̅̅̅̅̅ 3/2 √̅̅̅̅̅̅̅̅

7.1 M1,M2,F Question 1 ✔ ✘

a social sustainability policy are provided in Table 5.

Fig. 4. Interactions between the three dimensions of sustainability.

7.2. An analysis on the tax discrimination between the FTSs

Managerial insight 2 summarizes the analyses and responds to Question 2.

7.4. An analysis on the market bases

∂π*1 ∂π*1 ∂π*2 ∂π *2 ∂π* ∂π* ∂π* ∂π*

∂TFC* ∂TFC* ∂TFC* ∂TFC*

Fig. 5. Interaction between the market bases of the FTSs.

∂TCS* ∂TCS* ∂TCS* ∂TCS*

7.5. An analysis on the fuel consumption rates

Fig. 6. A schematic view of rebound effects on total fuel consumption.

Fig. 7. A schematic view of rebound effects on total consumer surplus.

Fig. 8. The schematic view of environmental sustainability maximization.

Fig. 9. The schematic view of social sustainability maximization.

CRediT authorship contribution statement

Appendix: definitions of new expressions

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∂π1 ∂π1 ∂π2 ∂π 2 ∂π* ∂π* ∂π* ∂π*