Bertrand Competition with Capacity Expansion: Case Study for Container Port Competition Between Hong Kong and Shenzhen, China

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.

• Record URL:
  https://doi.org/10.3141/2166-09
• Summary URL:
  http://scholar.google.com/scholar_lookup?title=Bertrand+Competition+with+Capacity+Expansion%3a+Case+Study+for+Container+Port+Competition+Between+Hong+Kong+and+Shenzhen%2c+China&author=M.+Luo&author=L.+Liu&author=F.+Gao&publication_year=2010
• Availability:
  • Find a library where document is available. Order URL: http://www.trb.org/Main/Blurbs/Marine_Transportation_and_Port_Operations_2010_164361.aspx
• Authors:
  • Luo, Meifeng
  • Liu, Liming
  • Gao, Fei
• Publication Date: 2010

Language

• English

Media Info

• Media Type: Print
• Features: Figures; Maps; References; Tables;
• Pagination: pp 74-81
• Monograph Title: Marine Transportation and Port Operations 2010
• Serial:
  • Transportation Research Record: Journal of the Transportation Research Board
  • Issue Number: 2166
  • Publisher: Transportation Research Board
  • ISSN: 0361-1981

Subject/Index Terms

• TRT Terms: Case studies; Competition; Container terminals; Port capacity; Port operations; Pricing; Strategic planning; Water transportation
• Identifier Terms: Port of Hong Kong; Port of Shenzhen
• Uncontrolled Terms: Hinterlands; Port expansion
• Geographic Terms: Hong Kong (China); Shenzhen Shi (China)
• Subject Areas: Marine Transportation; Planning and Forecasting; Terminals and Facilities; I72: Traffic and Transport Planning;

Filing Info

• Accession Number: 01154346
• Record Type: Publication
• ISBN: 9780309142991
• Report/Paper Numbers: 10-1980
• Files: TRIS, TRB, ATRI
• Created Date: Apr 14 2010 7:14AM