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Port privatization under Cournot vs. Bertrand competition: a third-market approach

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  • DongJoon Lee
  • Seonyoung Lim
  • Kangsik Choi

Abstract

By incorporating port competition into a third-market model consisting of two exporting firms and one importing country, we demonstrate the endogenous choice of port structures (i.e. privatization or public ownership) under either Bertrand or Cournot competition. In contrast to previous studies on port competition, we analyze the port strategy in view of all trading countries (i.e. importing country and exporting countries). We find that regardless of transport cost, the port ownership strategy alters according to exporting firm’s competition mode. Under Bertrand competition, the choice of port ownership structure depends on the degree of imperfect substitutability. However, under Cournot competition, all trading countries choose same ownership structures of each port. By comparing equilibrium of each competition mode, we show that welfare of exporting country under Cournot competition is higher than under Bertrand competition if goods are sufficiently substitutes. In contrast, importing country prefers Bertrand competition to Cournot competition when the competitive pressure is sufficiently high.

Suggested Citation

  • DongJoon Lee & Seonyoung Lim & Kangsik Choi, 2017. "Port privatization under Cournot vs. Bertrand competition: a third-market approach," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(6), pages 761-778, August.
  • Handle: RePEc:taf:marpmg:v:44:y:2017:i:6:p:761-778
    DOI: 10.1080/03088839.2017.1336262
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    Cited by:

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    2. Wang, Wei & Liu, Xiujuan & Ding, Lili & Li, Chen & Zhang, Wensi, 2018. "The optimal port privatization levels under inter-port competition: Considering both horizontal and vertical differentiation," Economics Discussion Papers 2018-84, Kiel Institute for the World Economy (IfW).
    3. Zihua Liu & Dong Yang & Y. N. Eppie Ng, 2020. "A competitive analysis of port of Hong Kong: from external to internal," Journal of Shipping and Trade, Springer, vol. 5(1), pages 1-17, December.

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