Port privatization in an international oligopoly

• How does port privatization affect port charges, firm profits, and social welfare?
• We consider an international duopoly with usage of two ports and two markets.
• When the unit transport cost is large, port privatization decreases the port charge.
• The smaller country’s government is more likely to privatize its port.
• The nationalization of a port can work as a protection of its domestic market.

We investigate the effects of port privatization on port usage fees, firm profits, and welfare. Our model consists of an international duopoly with two ports and two markets. When the unit transport cost is high, port privatization reduces port usage fees, although neither government has an incentive to privatize its port. The equilibrium governmental decisions are inconsistent with the desirable outcome if the unit transport cost is not high enough. The government of the smaller country, in terms of market size, is more likely to privatize its port, and the government of the larger country is more likely to nationalize its port to protect its domestic market.