Competition or Cooperation: a Simulation of the Price Strategy of Ports

Ports act as the nodes connecting water transport with land transport and play pivotal roles in logistics networks. The rapid rise in international freight volume has led to a faster growth in the throughputs of many ports. With the development of containerization, services provided by different ports could be substitutable with each other, especially those in the same region which are more competitive for substitutability. However, the question must be asked: is competition unchangeable? Moreover, is competition strategy always the best solution for ports? The purpose of this article is to analyse the issue of which strategy is better for ports: competition or cooperation. Using a modified Hotelling model, multiple competitors are analysed applying a competition strategy and simulations are developed of three ports with competitive and cooperative targets respectively. Research results reveal that, with the same service levels, location is a critical factor for competitive ports and, with a view to capturing greater market share, ports are motivated to form alliances. (Received in August 2014, accepted in March 2015. This paper was with the authors 2 months for 1 revision.)