The impact of Panama Canal expansion on the container-shipping market: a cooperative game theory approach

Abstract

Complicated relationships and interactions among stakeholders in the international container-shipping market make it difficult to estimate the impact of the market’s structural changes. This article uses cooperative game theory to analyze potential impacts of the Panama Canal (PC) expansion on the evolving competitive–cooperative relationships and the distribution of market power among the supply-chain players in the US container-import market. The hierarchical structure of the ocean shipping industry is captured using bi-level optimization models, with the ocean carrier (OC) acting as the market leader. The result shows that the enlarged ship size passing through the PC will increase the East Coast players’ market power by 32% while hurting the West Coast players by 22%. The subcoalition between the OC and the West Coast players is most likely to form prior to the PC expansion while the subcoalition between the OC and the East Coast players is preferred by the OC after the PC expansion. However, the total profit with competitive subcoalitions is always less than the grand coalition’s profit. The impacts of possible variations in service costs, as well as charges by the PC, the ports, and the railroad after the expansion, are also analyzed.

Keywords:

• Panama Canal expansion
• cooperative game
• Shapley value
• bi-level programming model

Acknowledgments

The corresponding author would also like to give special thanks to Upper Great Plains Transportation Institute for funding support during her PhD study. This article is a revised and expanded version of a paper entitled ‘The Impact of Panama Canal Expansion on U.S. Container Import Market Structure: A Game Theory Approach’ presented at International Association of Maritime Economist, Norfolk, USA, 2014.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported partly by the General Research Fund of Hong Kong Research Grant Council [PolyU 5463/12H]; the National Natural Science Foundation of China [71471101]; and the Natural Science Foundation of Shandong Province, China [ZR2015GZ008].