Title: Governments' sequential facility investments and ports' pricing under service differentiation and uncertainty

Authors: Hsiao-Chi Chen; Paul Tae-Woo Lee; Shi-Miin Liu; Tsung-Chen Lee

Addresses: Department of Economics, National Taipei University, San-Shia District, New Taipei City, 23741, ROC, Taiwan ' Institute for Supply Chain and Logistics, College of Business, Victoria University, Melbourne, Australia ' Department of Economics, National Taipei University, San-Shia District, New Taipei City, 23741, ROC, Taiwan ' Department of Economics, National Taipei University, San-Shia District, New Taipei City, 23741, ROC, Taiwan

Abstract: This paper examines optimal facility investments of risk-averse governments and optimal pricing of risk-neutral ports under service differentiation and demand uncertainty. We construct a three-period game, in which governments 1 and 2 choose their facility investments in the first and the second periods respectively, and then the two ports decide their service prices in the third period. We find that government 2 will invest more in facilities if government 1 does so when variations of the market demand are large. However, government 2 may not own higher expected utility than government 1. Moreover, we explore how the model's parameters affect optimal behaviours of governments and their ports. All of these outcomes remain true if uncertainty comes from the cost-side, or if the demand for ports' services depends on their facility levels.

Keywords: facility investment; price competition; service differentiation; sequential game; uncertainty.

DOI: 10.1504/IJSTL.2017.084826

International Journal of Shipping and Transport Logistics, 2017 Vol.9 No.4, pp.417 - 448

Accepted: 29 Jul 2015
Published online: 06 Jun 2017 *

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