Should the landlord port authority negotiate concession contracts with terminal operators?

This study analyzes the formulation of concession contracts through negotiations between a landlord port authority and two terminal operators in a two-stage game framework. In the first stage, the three parties negotiate contract terms; in the second stage, the terminal operators compete in cargo-handling volumes. When marginal costs and reservation payoffs are identical, the optimal contract is generally a two-part tariff or a unit-fee scheme, though the conditions under which each occurs differ from those identified in previous studies. However, with disparities in these factors, a fixed-fee contract may also be optimal—contrary to previous studies that omit bargaining considerations. Our results further show that introducing bargaining always reduces the port authority's fee revenue, while increasing each operator's profit unless asymmetric operators face minimum throughput requirements. Moreover, the total payoff of all parties does not rise when operators are symmetric, though it may increase under asymmetry. These findings suggest that simultaneous bargaining over concession contracts benefits all parties only under specific conditions of operator asymmetry. The robustness of these results is further confirmed by extending the analysis to include operators' price competition, variations in operators' market power, and uncertainty in market demand faced by all three parties.