Capacity investment decisions of two competing ports under uncertainty: A strategic real options approach
Peter Kort and
Transportation Research Part B: Methodological, 2019, vol. 122, issue C, 249-264
Ports worldwide operate in an uncertain environment and compete with nearby ports to attract cargo. The extent of competition is influenced by the geographical location and differentiated services offered at ports. In this paper, we study the flexible investment decision of two ports with an option to delay investment in a capacity level that is not ex-ante determined. Ports compete on quantity (Cournot competition) under demand uncertainty and congestion. In a leader-follower timing game, we consider both the entry deterrence and accommodation strategies for the leader port. If one of the ports only has a limited cost advantage, the leader role will be endogenous and will be the result of preemption. Uncertainty is included in the model by a geometric Brownian motion, allowing us to analyse the impact of growth and uncertainty (variability) independently. We find that higher growth, uncertainty and port customers’ aversion to waiting lead to a larger project installed at a later moment. If competition intensifies however, the option value of waiting is reduced, leading to earlier investment, but surprisingly also in less capacity. Finally, if more shares of the ports are publicly owned, the investment will be larger and will take place earlier.
Keywords: Port capacity; Port competition; Heterogeneous ports; Investment size and timing; Real options game; Strategic real options (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:transb:v:122:y:2019:i:c:p:249-264
Ordering information: This journal article can be ordered from
https://shop.elsevie ... _01_ooc_1&version=01
Access Statistics for this article
Transportation Research Part B: Methodological is currently edited by Fred Mannering
More articles in Transportation Research Part B: Methodological from Elsevier
Bibliographic data for series maintained by Haili He ().