INTERNAL DYNAMICS OF INVENTORY-THEORETIC MODELS FOR MICROECONOMIC TRANSPORTATION APPLICATIONS

Freight Service Quality Choice Problems (FSQCPs) range from carrier se lection to ship design issues. This paper is primarily concerned with continuous microeconomic FSQCPs, such as maximizing carrier profit as a function of the freight service quality provided. With inventory-the oretic FsQCP applications, the shipper's sensitivity to variations in freight service quality is simulated with an inventory decision model. Desirable inventory model characteristics depend on the problem's str ucture end the analyst's perspective. In particular, continuous microe conomic FsQCPs require reasonable and well understood shipper cost sur faces over relatively large dependent variable and parameter ranges. T he two most popular models in the inventory-theoretic transportation l iterature are therefore examined with respect to their internal dynami cs and cost surfaces. An unexpected tradeoff relationship is discovere d with one model, and cost surface deformities are associated with the other. The common assumption that safety stock always increases with shipper inventory cost is also refuted.