The effects of vertical integration and carbon tax on supply chain performance and economic welfare in the maritime industry

Abstract

ABSTRACT This study investigates the effects of the vertical integration of shipping companies and ports and the carbon tax on supply chain performance and economic welfare in the maritime industry. Specifically, we developed a game-theoretic transport network model that included two ports and two logistic services operated by two shipping companies. We show the following results by deriving equilibria from the models. First, when a port and a shipping company are vertically integrated, the port’s service quality improves and carbon emission per unit service decreases, which in turn positively impacts consumer surplus because the quality improvement increases the overall demand. However, vertical integration harms social welfare if total carbon emissions increase significantly due to vertical integration. Second, shipping companies and ports have incentives to vertically integrate. However, when competition is high, they may fall into a prisoner’s dilemma, meaning that the total profit of a route generated by vertical integrations is lower than the total profit without vertical integration on both routes. This result indicates that when competition is relatively intense, firms have incentives to collude with each other.