The effect of competition on economic rents in seaports

The Landlord Port model is the dominant port model in larger and medium-sized ports. The potential advantage of this organisational system is that the vertical separation of port authority and service provision allows for competition between different service suppliers in a port. This paper analyses such competition in a horizontal product differentiation model in which two ports compete for cargo trans-shipments. The model shows that the Landlord Port model is Nash equilibrium, and that this organisational form yields the highest profits for the port industry, and the highest prices for its customers. Introduction of intra-port competition into the Landlord model decreases industry profits and prices, which makes the port industry reluctant to open itself to such competition. A market organisation with vertically integrated ports, that is, Service Ports, realises even lower prices and profits. However, this organisational form is not sustainable without regulation because every individual port can realise a higher profit by separating service provision from port authority in order to become a Landlord Port.