Port Competition and Welfare Effect of Strategic Privatization
AbstractPrivate operation of port facilities is becoming increasingly common worldwide and many governments consider the privatization of public ports as a policy option. We investigate the effect of port privatization in a setting with two ports located in different countries, serving their home market but also competing for transshipment traffic from a third region. Each government chooses whether to privatize its port or to keep port operations public. We show that there exist equilibria in which the two governments choose privatization. In these equilibria, national welfare is higher relative to a situation where both ports are public. Since port charges are strategic complements, privatization can act as a valuable precommitment tool for the two governments and allows for a better exploitation of the third region. However, from the perspective of maximizing the joint national welfare of both port countries, there is an inefficiently low incentive to privatize. It is also shown that a country with a smaller home market has a larger incentive to choose private port operation.
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Bibliographic InfoPaper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2013-13.
Length: 20 pages
Date of creation: 24 Jan 2013
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Infrastructure competition; privatization; strategic delegation;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
- L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-COM-2013-07-28 (Industrial Competition)
- NEP-CSE-2013-07-28 (Economics of Strategic Management)
- NEP-NPS-2013-07-28 (Nonprofit & Public Sector)
- NEP-REG-2013-07-28 (Regulation)
- NEP-TRE-2013-07-28 (Transport Economics)
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