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Container terminal concessions: A game theory application to the case of the ports of Pakistan

Author

Listed:
  • Naima Saeed

    (Faculty of Economics, Informatics and Social Sciences, Molde University College, PO Box 2110, 6402 Molde, Norway)

  • Odd I Larsen

    (Faculty of Economics, Informatics and Social Sciences, Molde University College, PO Box 2110, 6402 Molde, Norway)

Abstract

The objective of this article is to analyse the effect of the type of concession contracts on port user surplus and on profits of terminal operators (or port authorities) with the help of game theory. We have selected three ports in Pakistan to perform this analysis. These ports function as ‘landlords’ and have signed concession contracts with private container terminal operators. However, the features of the contracts at present are different for each terminal. We analyse four cases in this article. The first case is the present situation in which we treat competition between terminals as a Bertrand game in which each terminal non-cooperatively determines charges for container handling and pays fees to port authorities according to the contract. The Bertrand model seems to reproduce, to a satisfactory degree, the market shares and handling fees observed. Furthermore, in the second and third cases, a cost-benefit analysis is conducted by solving the Bertrand model. The results reveal that in the long run it is profitable for the Karachi Port to establish a same fixed fee contract with its private terminals. However, users are better off in a situation where a percentage fee concession contract would be adopted instead. The game theoretic framework is then extended to the analysis of the strategic decision faced by port authorities with respect to the trade-off between unit fees and annual rent in the last case. An optimal concession contract is obtained that is feasible for both parties in the sense that it contains high unit fees (variable cost) and low annual rent (fixed cost).

Suggested Citation

  • Naima Saeed & Odd I Larsen, 2010. "Container terminal concessions: A game theory application to the case of the ports of Pakistan," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 12(3), pages 237-262, September.
    • Handle: RePEc:pal:marecl:v:12:y:2010:i:3:p:237-262
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    Citations

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    Cited by:

    1. Han, Wenqing & Liu, Shi-Miin & Chen, Hsiao-Chi, 2020. "Optimal concession contracts for landlord port authorities under incomplete information," Transport Policy, Elsevier, vol. 96(C), pages 113-127.
    2. Zhang, Jihua, 2016. "Quasi-landlord port financing in China: Features, practice and a contract theory analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 89(C), pages 73-88.
    3. Hsiao-Chi Chen & Shi-Miin Liu, 2015. "Optimal concession contracts for landlord port authorities to maximize traffic volumes," Maritime Policy & Management, Taylor & Francis Journals, vol. 42(1), pages 11-25, January.
    4. Claudio Ferrari & Pier Paolo Puliafito & Alessio Tei, 2019. "Dynamics in terminal concessions: the role of performances," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 21(1), pages 99-110, March.
    5. Bin Meng & Haibo Kuang & Erxuan Niu & Jing Li & Zhenhui Li, 2020. "Research on the Transformation Path of the Green Intelligent Port: Outlining the Perspective of the Evolutionary Game “Government–Port–Third-Party Organization”," Sustainability, MDPI, vol. 12(19), pages 1-25, September.
    6. 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.
    7. Patricija Bajec & Danijela Tuljak-Suban, 2022. "A Strategic Approach for Promoting Sustainable Crowdshipping in Last-Mile Deliveries," Sustainability, MDPI, vol. 14(20), pages 1-17, October.
    8. 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).
    9. Xu, Fangzhou & Hanaoka, Shinya, 2021. "Effects of airport terminal competition: A vertical structure approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    10. Liu, Shi-Miin & Chen, Hsiao-Chi & Han, Wenqing & Lin, Yen-Hung, 2018. "Optimal concession contracts for landlord port authorities to maximize fee revenues with minimal throughput requirements," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 109(C), pages 239-260.
    11. Zheng, Shiyuan & Ge, Ying-En & Fu, Xiaowen & (Marco) Nie, Yu & Xie, Chi, 2020. "Demand information sharing in port concession arrangements," Transportation Research Part B: Methodological, Elsevier, vol. 138(C), pages 118-143.
    12. Guo, Liquan & Yang, Dong & Yang, Zhongzhen, 2018. "Port integration method in multi-port regions (MPRs) based on the maximal social welfare of the external transport system," Transportation Research Part A: Policy and Practice, Elsevier, vol. 110(C), pages 243-257.

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