Modelling the effects of competition on seaports terminal awarding

Abstract

While the importance of inter‐port competition and intra‐port competition has been well recognized in the studies related to sea ports, few theoretical models have been developed with which the effects of competition on terminal concession awarding can be explicitly addressed. To fill this gap in research, this study proposes a non‐cooperative game theory model, where two terminal operators apply for terminal concessions in two adjacent ports. The modelling results suggest that (a) a terminal operator’s profit increases with its market power. As a result, it always prefers to control more terminals in the region; (b) However, when all terminal operators expanded their operations to every competing port in the region, they will be worse off due to an increase of inter and intra port competitions, a situation similar to the prisoners’ dilemma; and (c) when a port authority has significant market power thus that it can charge a high price from, or share a large proportion of the terminal operators’ revenue, the port authority would prefer to introduce inter and intra port competitions, rather than allowing one terminal operator to monopoly all terminals in the region. Empirical evidences consistent with these modelling results are discussed in the paper.