Competition and synergy effects of the horizontal integration for regional ports

Abstract

This paper explores the interaction between homogeneous service competition and cooperation in the context of horizontal integration among regional ports. A three-stage non-cooperative game model is proposed to systematically examine this intricate relationship. The results indicate that regional port integration reduces port service fees and freight rates while simultaneously increasing freight volumes. Notably, the reduction in port service fees achieved through collective integration effort may not substantially exceed that achieved by a single port, because in the early stage of regional port integration, the strong competition effect often outweighs the relatively weak synergy effect. The relative dominance of the competition effect over the synergy effect impacts both the stability of the system equilibrium and the conflict between individual optimization and system objectives. When the competition effect surpasses the synergy effect, the integration effort resembles the Prisoner's Dilemma, leading to a lose-lose outcome. Conversely, when the synergy effect outweighs the competition effect, the integration effort reaches a Pareto optimum, resulting in a mutually beneficial win-win outcome. Furthermore, the stronger regional port consistently exhibits economies of scale and dominates the social welfare, while the weaker port may need to actively engage in integration effort, depending on the disparity in port capabilities.