A game theoretical approach to competition between multi-user terminals: the impact of dedicated terminals

Abstract

In response to globalization and structural changes in logistics, firms in the transport industry have re-evaluated the scope of their activities [1]. A large number of shipping lines are vertically integrated to include terminal operations through shareholdings in or full ownership of dedicated terminal facilities. A number of terminal operating companies expanded their activities from their respective homeports to an international terminal network structure. These two developments have led to a competitive setting in which trans-national terminal operating companies and shipping lines vie for the control over terminal capacity. In this paper, a horizontal product differentiation model is introduced to analyze competition between container terminals using a game theoretic approach. We focus on a landlord port management system with long-term concessions agreements shaping the formal relationships between the Port Authority (PA) (who owns the land) and the private Terminal Operators (TOs) (who use the land for terminal activities). Starting from the linear city model of Hotelling [2], we develop a framework for Cournot competition between multi-user terminals. By comparing the results (expected payoffs for potential TOs and PAs) of different cases, this paper demonstrates how the shift toward a fully dedicated terminal impacts on intra-port and inter-port competition between the remaining multi-user terminals. The model is illustrated by referring to a case of terminal competition in a realistic setting.