Urban consolidation centres and competition among logistics service providers in a Hotelling approach

Urban cities are affected by negative externalities coming from urban mobility and goods distribution, such as air pollution and traffic congestion. In recent years, many European municipalities had introduced market-based measures, aiming at externalities’ internalisation, such as vehicle pollution charges (e.g., the Ecopass system in Milan, the Low Emission Zones in London, etc.) together with structural solutions which, however, end up adding complexity (i.e., transhipment, delivery times, handling costs, etc.) to urban supply chains, such as the introduction of urban consolidation centres (UCCs) to cover last mile deliveries. By using a simple Hotelling spatial model, we analyse the effect of semi-public UCCs on urban competition among logistics service providers (LSPs) assuming heterogeneous urban retailers with respect to demand elasticity to delivery times. We show that for increasing public shares/interests into UCCs' ownership (implying lower service costs), LSPs that apply for UCC-based services are likely to increase their market shares even if competition among LSPs is relatively low (i.e., high differentiation) and retailers' demand elasticity to delivery times is relatively high. From a normative perspective, our framework does confirm that pollution charges and semi-public UCCs are substitutes in order to promote a more environmental-friendly urban freight logistics.