Optimal concession contracts for landlord port authorities to maximise fee revenues

This paper analyses optimal concession contracts offered by a landlord port authority to competing operators of container terminals. The port authority pursues fee‐revenue maximisation. Three contract schemes considered are fixed‐fee, unit‐fee, and two‐part tariff. A two‐stage game is constructed to characterise interactions between the port authority and two terminal operators. In the first stage, the port authority announces a contract. Then terminal operators compete for cargo amounts in the second stage. We discover that when marginal service costs of the less‐efficient operator are small, the port authority would choose between the two‐part tariff and the unit‐fee schemes. Oppositely, the two‐part tariff and the unit‐fee schemes are equally preferred. Finally, if both terminal operators' efficiency is identical, the two‐part tariff contract is the best.