ABSTRACT
This paper investigates how landlord port authorities should offer concession contracts to their terminal operators under two different goals, by building a two-stage game for each goal. If maximizing the weighted sum of fee revenues and throughout benefits is port authorities’ goal, then the optimal concession contract can be any of the two-part tariff, the unit-fee, and the fixed-fee contracts. Accordingly, our special cases include previous works assuming that port authorities maximize either fee revenues or throughput benefits. By contrast, if maximizing the social welfare is the goal, then we find that subsidizing terminal operators, instead of charging them, is port authorities’ best choice. This result is not yet discovered in the literature.
Acknowledgments
The authors would like to thank editor Kevin Li and two anonymous referees for their valuable comments.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. When port authorities are (local) governments, they may put higher weights on throughput benefits, especially in an election period. However, a larger weight may be given to fee revenues if port authorities are private companies.
2. of Section 2 summarizes their differences.
3. Since operator 2 may not lease terminals in some fee contracts, both interior () and boundary (
) solutions should be considered. They can be derived from (12)–(13). For instance,
if
while
if
However, we will focus on (14)-(15) and discuss more details after condition (18) and in footnote 5.
4. Condition suggests
while condition
implies
Since
the latter condition contains the former.
5. That is because
by
and
. But
has an uncertain sign.
6. For instance, the port authority of Portland subsidizes its terminal operator ICTSI (see http://www.joc.com/port-news/us-ports/port-portland -ore at 2014).