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Port Competition and Welfare Effect of Strategic Privatization

Author

Listed:
  • Czerny, Achim

    () ((WHU - Otto Beisheim School of Management))

  • Höffler, Felix

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

  • Mun, Se-il

    () (Kyoto University)

Abstract

Private 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.

Suggested Citation

  • 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 (EWI).
  • Handle: RePEc:ris:ewikln:2013_013
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    References listed on IDEAS

    as
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    Cited by:

    1. Teraji, Yusuke & Morimoto, Yu, 2014. "Price competition of airports and its effect on the airline network," Economics of Transportation, Elsevier, vol. 3(1), pages 45-57.

    More about this item

    Keywords

    Infrastructure competition; privatization; strategic delegation;

    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

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