Investment competition on dedicated terminals under demand ambiguity

Shiyuan Zheng, Changmin Jiang, Xiaowen Fu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)

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.

Original languageEnglish
Article number102306
JournalTransportation Research Part E: Logistics and Transportation Review
Volume150
DOIs
Publication statusPublished - Jun 2021

Keywords

  • Dedicated terminal
  • Investment competition
  • Knightian uncertainty
  • Multiple-priors expected utility (MEU)
  • Real option game

ASJC Scopus subject areas

  • Business and International Management
  • Civil and Structural Engineering
  • Transportation

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