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Private port pricing and public investment in port and Hinterland capacity

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Listed:
  • 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.

Suggested Citation

  • Bruno De Borger & Stef Proost & Kurt Van Dender, 2007. "Private port pricing and public investment in port and Hinterland capacity," Working Papers Department of Economics ces0708, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces0708
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    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. 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.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Port pricing; congestion; investment; cost benefit rules;

    JEL classification:

    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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