Bertrand competition with capacity expansion case study for container port competition between Hong Kong and Shenzhen, China

Meifeng Luo, Liming Liu, Fei Gao

Research output: Journal article publicationJournal articleAcademic researchpeer-review

3 Citations (Scopus)

Abstract

This study analyzes factors and competitive strategies for a market that is in transition from monopoly to duopoly and uses port competition as an example. The study models two ports that serve the same hinterland and compete strategically by using both pricing and capacity investment. Both ports are profit maximizers, and port expansions are lumpy, indivisible, and irreversible. The decision-making process of the two ports is analyzed with a two-stage game. In the first stage, two ports compete with each other on capacity expansion. In the second stage, they follow Bertrand competition with differentiated products conditional on realized port capacities. Within this formulation, the lack of credibility and ineffectiveness of preemptive pricing in market deterrence is shown by using the mutual best-response functions in the pricing subgame. In the capacity expansion game, the pure-strategy Nash equilibria for different scenarios characterized by the gain from expansion and the annual capital cost of investment are identified. The case study explains the past transition of market power, the fast development in Shenzhen port, and possible market structure with continued demand increase.
Original languageEnglish
Pages (from-to)74-81
Number of pages8
JournalTransportation Research Record
Issue number2166
DOIs
Publication statusPublished - 12 Jan 2010

ASJC Scopus subject areas

  • Civil and Structural Engineering
  • Mechanical Engineering

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