Transforming Hong Kong's warehousing industry with a novel business model: A game-theory analysis

The booming e-commerce and intense regional competition are pushing the transformation of Hong Kong's warehousing industry towards more automated and efficient. However, this falls into a dilemma when stakeholders do not have enough technical and operational capability (to use advanced facility and systems) or strong motivation (due to high investment and risk). To resolve this, we first propose a new business model in which a third party - the warehousing equipment supplier (WES) is introduced to the current business between the warehouse owner (WO) and the user. The WO and WES own different advantages, complement each other and have the potential to “make the pie bigger” and promote the transformation. Then we utilize cooperative game-theory approaches (the Cournot game and the Shapley value) to explore the possible equilibrium in the new business model on profit distribution, the essential conditions for this new model to succeed and what factors that determine and affect the efficiency of the game. The experiments using the real data set show that market demand and its sensitivity to service quality, service price, price elasticity, etc. can exert impacts on the cooperative surplus and lead to the feasibility/infeasibility of the business model.