Should ports expand their facilities under congestion and uncertainty?

• This paper analyzes the simultaneous investments of risk-averse ports in their facilities under congestion and an uncertain market demand.
• A two-stage game is built to characterize the interactions between two ports.
• We find the conditions under which ports will expand their facilities or not.
• We compare the behaviors of risk-averse and risk-neutral ports, and ports’ behaviors under uncertainty and no-uncertainty.
• We analyze how ports’ equilibrium prices are affected by their costs, facility levels, and uncertain demand.

This paper investigates simultaneous facility investments of risk-averse ports under congestion and uncertain market demand. We set up a two-period game, allowing two ports first choose their facility investment levels, and then decide their cargo-handling amounts and service prices. When investment costs of the two ports are large, the unique equilibrium is no investment. If investment costs of at least one port are small, then one or two ports will invest at equilibria. If both ports invest at equilibrium, they may become worse off than at non-equilibrium of no investment. This means that the ports may face a tradeoff between stability and efficiency. Moreover, we compare the behaviors of risk-averse and risk-neutral ports, as well as risk-averse ports’ behaviors under uncertainty and no-uncertainty. It is found that ports’ risk-averse degrees are the major factor determining their behaviors in different scenarios.