Strategic investments in accessibility under port competition and inter-regional coordination

Abstract

This paper analyzes the incentives for and welfare implications of collaboration among local governments in landside port accessibility investment. In particular, we consider two seaports with their respective captive markets and a common inland market for which the ports compete. The ports and the inland belong to three independent regional governments, each making investment decisions on accessibility for its own region. We find that there is a conflict of interest between the port governments and inland government in terms of their jointly making accessibility investment decisions, and that each region's preference over various coalitions is highly affected by ownership type of the competing ports. For public ports, the inland may compensate the port regions to achieve the grand coalition that maximizes total welfare but requires a sizable investment in the port regions. For private ports, however, the port regions benefit from coordinating with the inland and hence may be able to compensate the inland to form the grand coalition.