Abstract

This study analyzes the best pricing and capacity expansion strategies when an existing business facing new competitors with better competitive conditions, using container port as a case study. Port capacity development is a critical strategy for the growth of a new port, as well as for the development of existing ones, when both new and existing ports serve the same hinterland but have different competitive conditions. A two-stage duopoly model is developed that comprises the pricing and capacity decisions of two heterogeneous players serving an increasing market. It identifies the necessary condition for a port to increase its profit through capacity expansion, and characterizes the condition when preemptive pricing by the dominant player is neither credible nor effective in preventing the smaller player from gaining market share. It also finds the pure-strategy Nash equilibrium in the capacity expansion game for two ports that have different price sensitivities, as well as different operation and capacity investment costs. The model results are applied to the container port competition between Hong Kong and Shenzhen after Shenzhen port started its container operation in 1991. Our analysis explains the transition of market power from monopoly to duopoly, the fast development of Shenzhen Port, and the possible market structure changes with the continuing increase in demand.

About the Speaker

Prof. Meifeng Luo is a Professor of Maritime Studies in the Department of Logistics and Maritime Studies at The Hong Kong Polytechnic University. He is also an Associate editor of Maritime Policy & Management—The flagship journal of international shipping and port research. He had worked for 12 years in the State Oceanic Administration, China, after graduated from Tongji University with a BSc. degree in 1984. He studied at World Maritime University for a MSc. Degree in Maritime Administration and Environmental Protection; MSc. in Computer Science and Ph.D. in Economics from the University of Rhode Island, U.S.A. (2002); He worked as a research scientist there from 2002 to 2005, then started his academic career as an assistant professor in The Hong Kong Polytechnic University.

His research includes the economics, environment, policy and management aspects in port and shipping businesses, industry, and the market, using analytical and statistical modelling, quantitative analysis, and computer simulation. He has published more than 70 papers at SCI/SSCI journals including Transportation Research Part B, A, E; Transport reviews; Journal of Transport Economics and Policy; Accident Analysis and Prevention; Transportmetrica Part A; Marine Policy; Transport Policy; Ecological Economics; Journal of Air Transport Management; Energy; Omega; Tourism Economics; Environment, Development and Sustainability; Safety Science; International Journal of Shipping and Transport Logistics; as well as Maritime Policy and Management. 9 PhD students he supervised have started their career in Shanghai University, Shanghai Jiaotong University, Nankai University, Guangzhou Jiaotong University, Guangxi University, a Korean university, and many other universities.