Optimal competitive pricing in European port container terminals: A game-theoretical framework

Abstract

Containers’ handling in dedicated port terminals correspond to a highly competitive market where pricing strategies play a decisive role in their economic and operational performance. For that reason, the formation of an appropriate pricing strategy should follow a thorough methodological treatment supporting policy-making and state-of-the-practice. In the current paper, such a methodological framework is developed and applied to a realistic system, incorporating the concept of pricing differentiation among competing container port facilities. Such an approach may identify pricing strategies that significantly differ from the marginal cost pricing practice, typically adopted by the majority of port authorities. As so, the proposed framework uses elements from non-cooperative game theory and equilibrium network design, enabling its application in realistic large-scale cases. Two distinctive instances are analysed in an additive manner, (a) one simplified case demonstrating the properties of the methodological framework and (b) a generalized case reflecting the market of European container terminals. Moreover, optimal pricing strategies are estimated by two distinctive game formats: a strategic/matrix form of discrete strategies and a continuous game form, each confirmatory of the other. The results provide evidence of the pricing opportunities associated with ports’ geographical location especially in relation with the demand profiles manifested in such spatially separated markets.