Pricing and contract preference in maritime supply chains with downstream competition impact of risk-aversion and contract unobservability

Abstract

The maritime market has been facing increasingly fierce competition. Most of the existing literature in maritime supply chain assumes that the details of the contracts between ports and carriers are common knowledge among all competing carriers. In reality, it is usually difficult for carriers to be fully aware of each other's contracts with ports. In view of this, we consider two representative contracts, namely wholesale price contact and two-tariff contract, construct a maritime supply chain with one port and two carriers, and analyze how risk-aversion behavior and contract unobservability impact the pricing and contract preference. We use passive beliefs as an equilibrium refinement criterion to solve the model. Our findings indicate that the carrier prefers the wholesale price contract, regardless of whether the contract is observable or not. The port tends to select the two-part tariff contract when the contract is observable. When faced with an unobservable contract, contract preference of the port depends on the competition intensity and degree of risk-aversion. Additionally, under the wholesale price contract, the port can benefit from the decrease of its risk-aversion coefficient and the increase of the carrier's risk-aversion coefficient, while the carrier is exactly the opposite. Meanwhile, the utility of the port can be increased or reduced by the increase in carrier's risk-aversion coefficient under the two-part tariff contract.