Pricing strategies for port competition and cooperation

ABSTRACT

This paper analyzes the effects of integration between two neighbor ports with a third port sharing the same overlapping hinterland. The merger (integrated port) can select either the price discrimination or uniform pricing strategy after integration. Our study reveals that port integration is always beneficial to the merger and the third port, but results in the reduction of consumer surplus and social welfare, regardless of the type of pricing strategy implemented. Further analysis shows that when the inland transportation cost to the ports is relatively low or sufficiently high, a better option is for the merger to adopt the price discrimination strategy. When port pollution is considered and has a relatively large impact, the integration of the two ports improves green social welfare for the region. This finding provides strong support for the ongoing port integration in China. In terms of pricing strategy, the uniform pricing strategy generates higher green social welfare when both inland transportation cost and pollution are relatively low, or both are significantly high. Otherwise, the price discrimination strategy generates the best result for the region.

KEYWORDS:

• Port competition
• horizontal integration
• pricing
• pollution
• social welfare

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [grant 71471101], the Natural Science Foundation of Shandong Province [grant ZR2015GZ008], and the Social Science Planning Fund Program of Shandong Province [grant 13CGLJ11].