Private Port Pricing and Public Investment in Port and Hinterland Capacity

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Private Port Pricing and Public Investment in Port and Hinterland Capacity

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Bruno De Borger
Stef Proost
Kurt Van Dender

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Stef Proost

Abstract

We study duopolistic pricing by ports that are congestible, share the same overseas customers and have each a downstream, congestible transport network to a common hinterland. In the central set-up, local (country) governments care about local welfare only and decide on the capacity of the port and of the hinterland network. We obtain the following results. First, profit-maximising ports internalise hinterland congestion in as far as it affects their customers. Second, investment in port capacity reduces prices and congestion at each port, but increases hinterland congestion in the region where the port investment is made. Investment in a port's hinterland is likely to lead to more port congestion and higher prices for port use, and to less congestion and a lower price at the competing port. Third, the induced increase in hinterland congestion is a substantial cost of port investment that strongly reduces the direct benefits of extra port activities. Fourth, imposing congestion tolls on the hinterland road network raises both port and hinterland capacity investments. We illustrate all results numerically and discuss policy implications. © 2008 LSE and the University of Bath

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Article provided by London School of Economics and University of Bath in its journal Journal of Transport Economics and Policy.

Volume (Year): 42 (2008)
Issue (Month): 3 (September)
Pages: 527-561
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Handle: RePEc:tpe:jtecpo:v:42:y:2008:i:3:p:527-561

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Web page: http://www.bath.ac.uk/e-journals/jtep

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Paper
- Bruno De Borger & Stef Proost & Kurt Van Dender, 2007. "Private port pricing and public investment in port and Hinterland capacity," Center for Economic Studies - Discussion papers ces0708, Katholieke Universiteit Leuven, Centrum voor Economische Studiën. [Downloadable!]
- De Borger B. & Proost S. & Van Dender K., 2007. "Private Port Pricing and Public Investment in Port and Hinterland Capacity," Working Papers 2007019, University of Antwerp, Faculty of Applied Economics. [Downloadable!]

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February. [Downloadable!] (restricted)
Other versions:
- James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Jan K. Brueckner, 2002. "Airport Congestion When Carriers Have Market Power," American Economic Review, American Economic Association, vol. 92(5), pages 1357-1375, December. [Downloadable!]
De Borger, Bruno & Van Dender, Kurt, 2006. "Prices, capacities and service levels in a congestible Bertrand duopoly," Journal of Urban Economics, Elsevier, vol. 60(2), pages 264-283, September. [Downloadable!] (restricted)
De Borger, B. & Dunkerley, F. & Proost, S., 2007. "Strategic investment and pricing decisions in a congested transport corridor," Journal of Urban Economics, Elsevier, vol. 62(2), pages 294-316, September. [Downloadable!] (restricted)
Other versions:
- De Borger Bruno & Dunkerley Fay & Proost Stef, 2006. "Strategic investment and pricing decisions in a congested transport corridor," Energy, Transport and Environment Working Papers Series ete0602, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment. [Downloadable!]
- De Borger B. & Dunkerley F. & Proost S., 2006. "Strategic investment and pricing decisions in a congested transport corridor," Working Papers 2006021, University of Antwerp, Faculty of Applied Economics. [Downloadable!]

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