Private Port Pricing and Public Investment in Port and Hinterland Capacity

44 Pages Posted: 26 Oct 2007

See all articles by Bruno De Borger

Bruno De Borger

University of Antwerp - Department of Economics

Stef Proost

KU Leuven - Department of Economics

Kurt Van Dender

Catholic University of Leuven; University of California, Irvine

Date Written: February 2007

Abstract

We study duopolistic pricing by ports that are congestible and that share a downstream, congestible transport network with other users in their respective hinterlands. In the central set-up, local (country) governments care about local welfare only and decide on the capacity of the port and of the hinterland network. We obtain the following results. First, profit-maximizing ports internalize hinterland congestion in as far as it affects their customers. Second, investment in port capacity reduces prices and congestion at both ports, but increases hinterland congestion in the region where the port investment is made. Investment in a port's hinterland likely leads to more port congestion and higher prices for port facility use, and to less congestion and a lower price at the competing port. Third, the induced increase in hinterland congestion is a substantial cost of port investment that strongly reduces the direct benefits of extra port activities. Fourth, imposing congestion tolls on the hinterland road network raises both port and hinterland capacity investments. We illustrate all results numerically and discuss policy implications.

Keywords: port pricing, congestion, investment, cost benefit rules

JEL Classification: L92, R4, H71

Suggested Citation

De Borger, Bruno and Proost, Stef V. and Van Dender, Kurt, Private Port Pricing and Public Investment in Port and Hinterland Capacity (February 2007). Available at SSRN: https://ssrn.com/abstract=1024691 or http://dx.doi.org/10.2139/ssrn.1024691

Bruno De Borger (Contact Author)

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium
+32/3/220.40.31 (Phone)
+32/3/220.47.99 (Fax)

Stef V. Proost

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
016 32 66 35 (Phone)
016 32 67 96 (Fax)

Kurt Van Dender

Catholic University of Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

University of California, Irvine ( email )

Campus Drive
Irvine, CA 62697-3125
United States

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