Study on the impact of subsidies for overlapping hinterland shippers on port competition

Port competition has changed from the competition between two single ports to that between two transport chains. The overlapping hinterland between two ports grows with the constant development of transport chains. A variety of subsidies offered to shippers by ports were put into practice for larger hinterland freight volume to improve port competitiveness. A study of the effects of shipper subsidies on port profits showed the following. (1) An individual port’s implementation of the subsidy strategy will expand its market share and increase its profits. (2) The competing port’s optimal response is to offer subsidies after another port has given subsidies. The optimal subsidy amounts of these two ports are the shippers’ inland transport costs. (3) Two final possibilities exist for stable states with two-port subsidy competition, that is, either both ports or neither port grants subsidies. These subsidies are associated with inland transport costs and port capacities. Considerations are given according to numerical analysis of the influence of marginal congestion cost alterations on undifferentiated positions, two-port profits, shipper surplus and social utility. The result shows that the marginal congestion costs increase will increase the profits of larger port, but will constantly lessen the shipper surplus and social utility. If both ports provide subsidies, the shipper surplus and social utility are better than those of the two ports that do not offer subsidies.