Post-entry container port capacity expansion

Meifeng LUO, Liming LIU, Fei GAO

Research output: Journal PublicationsJournal Article (refereed)

83 Citations (Scopus)

Abstract

Port capacity development is a critical strategy for the growth of a new port, as well as for the development of existing ones, when both new and existing ports serve the same hinterland but have different competitive conditions. To study this strategy, we develop a two-stage duopoly model that comprises the pricing and capacity decisions of two heterogeneous players serving an increasing market. We identify the necessary condition for a port to increase its profit through capacity expansion, and characterize the condition when preemptive pricing by the dominant player is neither credible nor effective in preventing the smaller player from gaining market share. We also find the pure-strategy Nash equilibrium in the capacity expansion game for two ports that have different price sensitivities, as well as different operation and capacity investment costs. We apply the model results to the container port competition between Hong Kong and Shenzhen after Shenzhen port started its container operation in 1991. Our analysis explains the transition of market power from monopoly to duopoly, the fast development of Shenzhen Port, and the possible market structure changes with the continuing increase in demand.
Original languageEnglish
Pages (from-to)120-138
Number of pages19
JournalTransportation Research: Part B
Volume46
Issue number1
DOIs
Publication statusPublished - Jan 2012

Keywords

  • Capacity expansion
  • Market preemption
  • Port competition
  • Pricing

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