Optimal investment strategy in a container terminal: A game theoretic approach

Abstract

A b s t r a c t This article investigates the optimal strategy for potential investments that may be adopted by port authorities to attract more carriers. A mathematical model is formulated to represent the main criteria used by carriers to evaluate a specific port. Then, a game theory approach is used to model the competition between several port authorities to attract carriers via maximizing their utility functions. The game type suggested is Sealed-Bid with one round. The results indicate that the optimal investment strategy used by a specific port is dependent on (i) the port's current state with respect to other competing ports; (ii) resource availability in terms of manpower and funds; (iii) expected profitability and (iv) other players' reaction toward investment. This study advises the port authority on maximizing the payoff in case of winning the bid by selectively investing in the port and minimizing the potential loss in case of losing the bid by refraining from performing any investment.

Assessing the investment environment in container terminals: A knowledge gap model

“…Investigating optimal investment strategy in a CT, Kaysi and Nehme 18 argued that the optimal investment strategy implemented by a port depends on the port’s location, resource availability, objective profitability, and other ports’ reactions to investment. Based on the result, the authors suggested cooperation among the different terminal companies in sharing information to minimize investment cost and competition.…”

‘Tool port’ to ‘landlord port’: a game theory approach to analyse gains from governance model transformation

“…By solving a game of four players consisting of two ports and two liners, they found that ports have higher power than liners in imposing high service charges. Kaysi and Nehme (2016) found that the optimal investment strategy of several ports competing with each other to attract carriers depends on the port's (i) present status compared to the competing ones, (ii) availability of resources, (iii) expected profitability and (iv) competitors' reactions to the investment. In that study, the suggested game is Bidding/Auction via Sealed-Bid or First-Price Auction.…”

Port investment in a volatile environment : a contractual risk perspective on public-private partnership

“…They considered an investment in the port capacity as a dynamic game and concluded that the longer the interval between each investment, the higher the port charges are. Indeed, at a strategic level, the optimal investment strategy for a port may be unique and largely dependent on factors such as its resource availability, expectation, current position, and competitors' reactions (Kaysi and Nehme, 2016).…”