The economics of port pricing

Abstract

This short paper is concerned with the problem of improving the methods currently used to price port facilities. It presents a simple economic model of how an optimal pricing policy may be arrived at, employing an adaptation of an interactive supply-demand framework initially developed in the context of allocating car-parking places in urban areas. The model demonstrates the basic economic tenet that charges should be set equal to the full marginal social opportunity cost (M.S.O.C.) of facilities used, with premiums added where capacity restrictions would otherwise lead to excessive queueing. The use of a probability demand curve shows that one of the main fears of the anti-pricing school, namely excessive resource misallocation due to miscalcuations of the marginal cost, tends to be exaggerated. Further, it is argued that many of the other arguments set out against marginal cost pricing of ports are either ill-founded or unlikely to be of practical importance—ports are little different to other goods and services consumed in the economy and standard economic policies apply to them.