Optimal concession contracts for landlord port authorities under price competition of terminal operators

This paper extends Chen and Liu's (2014) study by assuming that terminal operators compete in prices, instead of in quantities. Under this setting, the paper shows that the two‐part tariff contract is the port authority's best choice. In addition, the paper refines the outcomes of Chen and Liu (2014) by showing that the two‐part tariff contract, rather than the unit‐fee contract, is the optimal choice for the port authority if the marginal service costs of the less efficient operator are small. The results presented here and Chen and Liu (2014) imply that the two‐part tariff contract is the best solution for landlord port authorities under different competing modes and cost structures of terminal operators, as well as under various service differentiation levels of the operators. The port authority and the more efficient operator may prefer price or quantity competition. Terminal operators' service differentiation levels and their marginal service costs will determine the results. However, the less efficient operator will always prefer quantity to price competition if it survives in the market.