Internalizing congestion: the impact of market concentration and priority provision in global container ports

Abstract

In many transportation infrastructures, such as airport runways and container terminals, users (i.e., airlines and shipping lines) are non-atomistic. An extra visit to the transportation facility by a certain carrier not only increases the waiting time of the other carriers’ fleets but also hurts the operation of its own fleet. Theoretically, individual non-atomistic users may have incentives to (partially) internalize the congestion externality imposed on their own operation when making fleet arrival decisions. If this incentive exists, it will affect the optimal policy for mitigating congestion. Using high-frequency global vessel data from January 2016 to December 2020, covering 27 prominent container ports and 138 terminals, we provide evidence on the existence of congestion internalization and quantify the impact of priority provision on the incentives of internalizing congestion. By addressing the endogeneity issues with instrumental variables, we find that higher market concentration reduces vessels’ waiting time to berth. However, the provision of berthing priority can lengthen waiting times. Heterogeneity tests indicate that a 0.01-unit increase in the Herfindahl-Hirschman Index (HHI) is associated with an average decrease of approximately 7.289 h in vessel waiting time at terminals with low priority share, while no significant effects of HHI are observed on vessel waiting time at terminals with high priority share. This indicates that providing berthing priority reduces shipping lines’ incentives to mitigate congestion internally. Our findings provide new insights into how priority affects efficiency in congestible systems where users are non-atomistic.