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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

Abstract

We study duopolistic pricing by ports that are congestible and that share a downstream, congestible transport network with other users in their respective hinterlands. 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-maximizing ports internalize hinterland congestion in as far as it affects their customers. Second, investment in port capacity reduces prices and congestion at both ports, but increases hinterland congestion in the region where the port investment is made. Investment in a port’s hinterland likely leads to more port congestion and higher prices for port facility 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.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0708.

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Date of creation: Mar 2007
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Handle: RePEc:ete:ceswps:ces0708

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Keywords: Port pricing; congestion; investment; cost benefit rules;

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References

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  1. 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.
  2. 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.
  3. Jan K. Brueckner, 2002. "Airport Congestion When Carriers Have Market Power," American Economic Review, American Economic Association, vol. 92(5), pages 1357-1375, December.
  4. 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.
  5. Daniel, Joseph I. & Harback, Katherine Thomas, 2008. "(When) Do hub airlines internalize their self-imposed congestion delays?," Journal of Urban Economics, Elsevier, vol. 63(2), pages 583-612, March.
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Cited by:
  1. Yuen, Chi-lok Andrew & Zhang, Anming & Cheung, Waiman, 2012. "Port competitiveness from the users' perspective: An analysis of major container ports in China and its neighboring countries," Research in Transportation Economics, Elsevier, vol. 35(1), pages 34-40.
  2. Jan K. Brueckner & Stef Proost, 2009. "Carve-Outs under Airline Antitrust Immunity," CESifo Working Paper Series 2848, CESifo Group Munich.
  3. CANTOS-SANCHEZ, Pedro & MONER-COLONQUES, Rafael & SEMPERE-MONERRIS, José J. & ALVAREZ-SANJAIME, Oscar, 2011. "Vertical integration and exclusivities in maritime freight transport," CORE Discussion Papers 2011015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Ishii, Masahiro & Lee, Paul Tae-Woo & Tezuka, Koichiro & Chang, Young-Tae, 2013. "A game theoretical analysis of port competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 92-106.
  5. De Borger, Bruno & Proost, Stef, 2012. "Transport policy competition between governments: A selective survey of the literature," Economics of Transportation, Elsevier, vol. 1(1), pages 35-48.
  6. Pedro Cantos Sanchez & Rafael Moner-Colonques & Jose Sempere-Monerris & Oscar Alvarez, 2010. "Competition and horizontal integration in maritime freight transport," Discussion Papers in Economic Behaviour 0710, University of Valencia, ERI-CES.
  7. Czerny, Achim & Höffler, Felix & Mun, Se-il, 2013. "Port Competition and Welfare Effect of Strategic Privatization," EWI Working Papers 2013-13, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  8. Proost, Stef & Dunkerley, Fay & Borger, Bruno De & Gühneman, Astrid & Koskenoja, Pia & Mackie, Peter & Loo, Saskia Van der, 2011. "When are subsidies to trans-European network projects justified?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(3), pages 161-170, March.
  9. Marta Gonzalez-Aregall & Xavier Fageda, 2013. "Regulation of Port Charges in Spain: Global versus Local Competition," ERSA conference papers ersa13p581, European Regional Science Association.

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