IDEAS home Printed from https://ideas.repec.org/a/eee/transe/v150y2021ics1366554521000806.html
   My bibliography  Save this article

Investment competition on dedicated terminals under demand ambiguity

Author

Listed:
  • Zheng, Shiyuan
  • Jiang, Changmin
  • Fu, Xiaowen

Abstract

This paper establishes real option game models to investigate two competing shipping lines’ timing decisions on their respective dedicated terminal (DT) investments in the presence of demand ambiguity. In addition, we compare the shipping lines’ DT investment timing with the choice under the social optimum, and discuss the subsidy policies with which a government can regulate the shipping lines’ investment timing. The results indicate that (1) if the shipping lines are symmetric (i.e., have the same DT capacities, investment costs, and operation costs while having symmetric demands), their DT investment game could reach sequential investment equilibrium, where the leader makes a preemptive investment while the follower’s investment is delayed compared to the case without ambiguity; (2) when the government has complete information on the shipping lines’ ambiguity level, the regulation rule exhibits a stepwise structure where the social optimum (or the mixed timing between the social optimum and the shipping lines’ optimum, respectively) is implemented, if the social optimal timing is later (or earlier, respectively) than the shipping lines’ break-even timing; (3) when the government has incomplete information on the shipping lines’ ambiguity level, the stepwise structure still holds but the shipping lines can obtain extra subsidies due to their information advantages compared to the complete information case; and (4) compared to the complete information case, the incomplete information may promote (or delay, respectively) the regulated DT investment timing, if the increasing ambiguity has positive (or negative, respectively) effects on the shipping lines’ marginal option values.

Suggested Citation

  • Zheng, Shiyuan & Jiang, Changmin & Fu, Xiaowen, 2021. "Investment competition on dedicated terminals under demand ambiguity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:transe:v:150:y:2021:i:c:s1366554521000806
    DOI: 10.1016/j.tre.2021.102306
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1366554521000806
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.tre.2021.102306?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shengda Zhu & Shiyuan Zheng & Ying-En Ge & Xiaowen Fu & Breno Sampaio & Changmin Jiang, 2019. "Vertical integration and its implications to port expansion," Maritime Policy & Management, Taylor & Francis Journals, vol. 46(8), pages 920-938, November.
    2. Nishimura, Kiyohiko G. & Ozaki, Hiroyuki, 2007. "Irreversible investment and Knightian uncertainty," Journal of Economic Theory, Elsevier, vol. 136(1), pages 668-694, September.
    3. Changmin Jiang & Yulai Wan & Anming Zhang, 2017. "Internalization of port congestion: strategic effect behind shipping line delays and implications for terminal charges and investment," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(1), pages 112-130, January.
    4. Li, Shuai & Cai, Hubo, 2017. "Government incentive impacts on private investment behaviors under demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 115-129.
    5. Hercules E Haralambides & Pierre Cariou & Marco Benacchio, 2002. "Costs, Benefits and Pricing of Dedicated Container Terminals," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 4(1), pages 21-34, March.
    6. Zengjing Chen & Larry Epstein, 2002. "Ambiguity, Risk, and Asset Returns in Continuous Time," Econometrica, Econometric Society, vol. 70(4), pages 1403-1443, July.
    7. Álvarez-SanJaime, Óscar & Cantos-Sánchez, Pedro & Moner-Colonques, Rafael & Sempere-Monerris, José J., 2013. "Vertical integration and exclusivities in maritime freight transport," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 51(C), pages 50-61.
    8. Zheng, Shiyuan & Negenborn, Rudy R., 2014. "Centralization or decentralization: A comparative analysis of port regulation modes," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 21-40.
    9. Azevedo, Alcino & Paxson, Dean, 2014. "Developing real option game models," European Journal of Operational Research, Elsevier, vol. 237(3), pages 909-920.
    10. Zheng, Shiyuan & Ge, Ying-En & Fu, Xiaowen & Nie, Yu (Marco) & Xie, Chi, 2017. "Modeling collusion-proof port emission regulation of cargo-handling activities under incomplete information," Transportation Research Part B: Methodological, Elsevier, vol. 104(C), pages 543-567.
    11. Song, Zhuzhu & Tang, Wansheng & Zhao, Ruiqing, 2018. "Cooperation mode for a liner company with heterogeneous ports: Business cooperation vs. port investment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 513-533.
    12. Wen-Kai K. Hsu & Hong-Fwu Yu & Show-Hui S. Huang, 2015. "Evaluating the service requirements of dedicated container terminals: a revised IPA model with fuzzy AHP," Maritime Policy & Management, Taylor & Francis Journals, vol. 42(8), pages 789-805, November.
    13. Wang, Kun & Zhang, Anming, 2018. "Climate change, natural disasters and adaptation investments: Inter- and intra-port competition and cooperation," Transportation Research Part B: Methodological, Elsevier, vol. 117(PA), pages 158-189.
    14. Zamira S. Simkins & Richard D. Stewart, 2015. "Factoring a real value of cargo in port investment and funding decisions," Maritime Policy & Management, Taylor & Francis Journals, vol. 42(7), pages 712-728, October.
    15. Evangelia N. Kaselimi & Theo E. Notteboom & Bruno De Borger, 2011. "A game theoretical approach to competition between multi-user terminals: the impact of dedicated terminals," Maritime Policy & Management, Taylor & Francis Journals, vol. 38(4), pages 395-414, January.
    16. Christopher M. Anderson & Yong-An Park & Young-Tae Chang & Chang-Ho Yang & Tae-Woo Lee & Meifeng Luo, 2008. "A game-theoretic analysis of competition among container port hubs: the case of Busan and Shanghai 1," Maritime Policy & Management, Taylor & Francis Journals, vol. 35(1), pages 5-26, February.
    17. Dong, Gang & Zheng, Shiyuan & Lee, Paul Tae-Woo, 2018. "The effects of regional port integration: The case of Ningbo-Zhoushan Port," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 120(C), pages 1-15.
    18. Musso, Enrico & Ferrari, Claudio & Benacchio, Marco, 2006. "Port Investment: Profitability, Economic Impact and Financing," Research in Transportation Economics, Elsevier, vol. 16(1), pages 171-218, January.
    19. Weifen Zhuang & Meifeng Luo & Xiaowen Fu, 2014. "A game theory analysis of port specialization-implications to the Chinese port industry," Maritime Policy & Management, Taylor & Francis Journals, vol. 41(3), pages 268-287, May.
    20. Tan, Zhijia & Li, Wan & Zhang, Xiaoning & Yang, Hai, 2015. "Service charge and capacity selection of an inland river port with location-dependent shipping cost and service congestion," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 76(C), pages 13-33.
    21. Jasmine Siu Lee Lam & Wei Yim Yap, 2011. "Container port competition and complementarity in supply chain systems: Evidence from the Pearl River Delta," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 13(2), pages 102-120, June.
    22. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    23. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
    24. Isam Kaysi & Nabil Nehme, 2016. "Optimal investment strategy in a container terminal: A game theoretic approach," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 18(3), pages 250-263, September.
    25. Meersman, Hilde M.A., 2005. "Port Investments in an Uncertain Environment," Research in Transportation Economics, Elsevier, vol. 13(1), pages 279-298, January.
    26. Asadabadi, Ali & Miller-Hooks, Elise, 2018. "Co-opetition in enhancing global port network resiliency: A multi-leader, common-follower game theoretic approach," Transportation Research Part B: Methodological, Elsevier, vol. 108(C), pages 281-298.
    27. Balliauw, Matteo & Kort, Peter M. & Zhang, Anming, 2019. "Capacity investment decisions of two competing ports under uncertainty: A strategic real options approach," Transportation Research Part B: Methodological, Elsevier, vol. 122(C), pages 249-264.
    28. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    29. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    30. Tu, Ningwen & Adiputranto, Dimas & Fu, Xiaowen & Li, Zhi-Chun, 2018. "Shipping network design in a growth market: The case of Indonesia," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 117(C), pages 108-125.
    31. Shiyuan Zheng & Rudy R. Negenborn, 2017. "Terminal investment timing decisions in a competitive setting with uncertainty using a real option approach," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(3), pages 392-411, April.
    32. Asadabadi, Ali & Miller-Hooks, Elise, 2020. "Maritime port network resiliency and reliability through co-opetition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 137(C).
    33. Talley, Wayne K., 2014. "Maritime transport chains: carrier, port and shipper choice effects," International Journal of Production Economics, Elsevier, vol. 151(C), pages 174-179.
    34. Dong-Wook Song, 2003. "Port co-opetition in concept and practice," Maritime Policy & Management, Taylor & Francis Journals, vol. 30(1), pages 29-44, January.
    35. Imai, Akio & Yamakawa, Yukiko & Huang, Kuancheng, 2014. "The strategic berth template problem," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 72(C), pages 77-100.
    36. Randrianarisoa, Laingo M. & Zhang, Anming, 2019. "Adaptation to climate change effects and competition between ports: Invest now or later?," Transportation Research Part B: Methodological, Elsevier, vol. 123(C), pages 279-322.
    37. Zheng, Shiyuan & Fu, Xiaowen & Jiang, Changmin & Ge, Ying-En, 2020. "Airline investments in exclusive airport facilities: Timing decisions under demand ambiguity," Transportation Research Part B: Methodological, Elsevier, vol. 139(C), pages 343-363.
    38. Chevalier-Roignant, Benoît & Flath, Christoph M. & Huchzermeier, Arnd & Trigeorgis, Lenos, 2011. "Strategic investment under uncertainty: A synthesis," European Journal of Operational Research, Elsevier, vol. 215(3), pages 639-650, December.
    39. Adolf K.Y. Ng & Zaili Yang & Stephen Cahoon & Paul T.W. Lee & Winai Homosombat & Adolf K. Y. Ng & Xiaowen Fu, 2016. "Regional Transformation and Port Cluster Competition: The Case of the Pearl River Delta in South China," Growth and Change, Wiley Blackwell, vol. 47(3), pages 349-362, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guo, Liquan & Ng, Adolf K.Y. & Jiang, Changmin & Long, Jiancheng, 2021. "Stepwise capacity integration in port cluster under uncertainty and congestion," Transport Policy, Elsevier, vol. 112(C), pages 94-113.
    2. Wang, Bi & Chin, Kwai Sang & Su, Qin, 2022. "Prevention and adaptation to diversified risks in the seaport–dry port system under asymmetric risk behaviors: Invest earlier or wait?," Transport Policy, Elsevier, vol. 125(C), pages 11-36.
    3. Xu, Haonan & Liu, Jiaguo & Xu, Xiaofeng & Chen, Jihong & Yue, Xiaohang, 2024. "The impact of AI technology adoption on operational decision-making in competitive heterogeneous ports☆," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 183(C).
    4. Zheng, Shiyuan & Wang, Kun & Chan, Felix T.S. & Fu, Xiaowen & Li, Zhi-Chun, 2022. "Subsidy on transport adaptation investment-modeling decisions under incomplete information and ambiguity," Transportation Research Part B: Methodological, Elsevier, vol. 162(C), pages 103-129.
    5. Ng, ManWo, 2024. "Repositioning with unreliable carriers: The case of marine chassis equipment at container ports," European Journal of Operational Research, Elsevier, vol. 315(2), pages 777-785.
    6. Zhu, Shengda & Fu, Xiaowen & Bell, Michael G.H., 2021. "Container shipping line port choice patterns in East Asia the effects of port affiliation and spatial dependence," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 156(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zheng, Shiyuan & Fu, Xiaowen & Jiang, Changmin & Ge, Ying-En, 2020. "Airline investments in exclusive airport facilities: Timing decisions under demand ambiguity," Transportation Research Part B: Methodological, Elsevier, vol. 139(C), pages 343-363.
    2. Zheng, Shiyuan & Wang, Kun & Chan, Felix T.S. & Fu, Xiaowen & Li, Zhi-Chun, 2022. "Subsidy on transport adaptation investment-modeling decisions under incomplete information and ambiguity," Transportation Research Part B: Methodological, Elsevier, vol. 162(C), pages 103-129.
    3. Zhu, Shengda & Fu, Xiaowen & Bell, Michael G.H., 2021. "Container shipping line port choice patterns in East Asia the effects of port affiliation and spatial dependence," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 156(C).
    4. Zheng, Shiyuan & Wang, Kun & Fu, Xiaowen & Zhang, Anming & Ge, Ying-En, 2022. "The effects of information publicity and government subsidy on port climate change adaptation: Strategy and social welfare analysis," Transportation Research Part B: Methodological, Elsevier, vol. 166(C), pages 284-312.
    5. Guo, Liquan & Ng, Adolf K.Y. & Jiang, Changmin & Long, Jiancheng, 2021. "Stepwise capacity integration in port cluster under uncertainty and congestion," Transport Policy, Elsevier, vol. 112(C), pages 94-113.
    6. Wang, Bi & Chin, Kwai Sang & Su, Qin, 2022. "Prevention and adaptation to diversified risks in the seaport–dry port system under asymmetric risk behaviors: Invest earlier or wait?," Transport Policy, Elsevier, vol. 125(C), pages 11-36.
    7. Zheng, Shiyuan & Fu, Xiaowen & Wang, Kun & Li, Hongchang, 2021. "Seaport adaptation to climate change disasters: Subsidy policy vs. adaptation sharing under minimum requirement," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 155(C).
    8. Randrianarisoa, Laingo M. & Zhang, Anming, 2019. "Adaptation to climate change effects and competition between ports: Invest now or later?," Transportation Research Part B: Methodological, Elsevier, vol. 123(C), pages 279-322.
    9. Zheng, Shiyuan & Luo, Meifeng, 2021. "Competition or cooperation? Ports’ strategies and welfare analysis facing shipping alliances," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 153(C).
    10. Shiyuan Zheng & Rudy R. Negenborn, 2017. "Terminal investment timing decisions in a competitive setting with uncertainty using a real option approach," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(3), pages 392-411, April.
    11. Zheng, Shiyuan & Wang, Kun & Li, Zhi-Chun & Fu, Xiaowen & Chan, Felix T.S., 2021. "Subsidy or minimum requirement? Regulation of port adaptation investment under disaster ambiguity," Transportation Research Part B: Methodological, Elsevier, vol. 150(C), pages 457-481.
    12. Wang, Junjin & Liu, Jiaguo & Wang, Fan & Yue, Xiaohang, 2021. "Blockchain technology for port logistics capability: Exclusive or sharing," Transportation Research Part B: Methodological, Elsevier, vol. 149(C), pages 347-392.
    13. Tamini, Lota D., 2012. "Optimal quality choice under uncertainty on market development," MPRA Paper 40845, University Library of Munich, Germany.
    14. Asano, Takao, 2010. "Optimal tax policy and foreign direct investment under ambiguity," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 185-200, March.
    15. Xia, Wenyi & Lindsey, Robin, 2021. "Port adaptation to climate change and capacity investments under uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 152(C), pages 180-204.
    16. Arnon Archankul & Giorgio Ferrari & Tobias Hellmann & Jacco J. J. Thijssen, 2023. "Singular Control in a Cash Management Model with Ambiguity," Papers 2309.12014, arXiv.org.
    17. Dong, Gang & Huang, Rongbing, 2022. "Inter-port price competition in a multi-port gateway region," Research in Transportation Economics, Elsevier, vol. 94(C).
    18. Dong, Gang & Ishii, Masahiro & Zheng, Shiyuan & Tezuka, Koichiro & Lee, Paul Tae-Woo, 2024. "Port capacity-sharing decisions in the post-COVID-19 pandemic era," Transport Policy, Elsevier, vol. 147(C), pages 22-31.
    19. Gang Dong & Dandan Zhong, 2019. "Tacit Collusion of Pricing Strategy Game between Regional Ports: The Case of Yangtze River Economic Belt," Sustainability, MDPI, vol. 11(2), pages 1-17, January.
    20. Li, Shuai & Cai, Jiannan & Feng, Zhuo & Xu, Yifang & Cai, Hubo, 2019. "Government contracting with monopoly in infrastructure provision: Regulation or deregulation?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 506-523.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transe:v:150:y:2021:i:c:s1366554521000806. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.