Smart technologies and port operations: Optimal adoption strategy with network externality consideration

Abstract

Smart technologies that streamline information among stakeholders can enhance operational efficiency at sea ports. The benefit of network externality from smart technologies further enhances port operations when more users adopt smart technologies. However, network externality has rarely been studied in port operations before. In this paper, we formulate a game theoretical model to identify a port’s optimal adoption strategy on smart technologies and analyze the impact of network externality on the port’s pricing and adoption decisions. A utility-based model is developed to study the added value of smart technology and its network effect for port operations. The port has three possible strategies in smart technology adoption: no adoption, full adoption and hybrid adoption. We show that either strategy can be optimal depending on the costs, direct benefit and strength of network externality of smart technology. Particularly, our findings reveal a positive relationship between the strength of the network effect and the likelihood of adopting the smart technology. Additionally, as the network effect strengthens, the likelihood of the hybrid adoption being optimal also increases. In addition, ports with frequent congestion and delay problems are likely better off with hybrid adoption than full adoption due to the benefit of network effect. Furthermore, our findings emphasize the importance of effectively communicating the network effect benefit of smart technology to port service users.