The Performance of Seaport Clusters - RePub - Erasmus Universiteit ...

Chapter 9 – Structure and Governance in Seaport Clusters; Literature Review 107
In the theoretical part, three arguments for the positive effect of internal competition on
cluster performance were discussed. Studies on internal competition in seaports deal only
with the monopoly rent argument; the specialization argument and vibrant environment
argument have not been studied.
Following the monopoly argument, the importance of internal competition depends on the
fierceness of external competition. When external competition is perfect, the absence of
internal competition does not affect the performance of the cluster. External competition in
cargo handling is perfect in two cases 67 :
• When all shippers can switch cargo without costs to different ports. This is the exception
rather than the rule: in most ports, industries related to the port generate substantial
cargo volumes; these cannot be switched without costs to another port.
• When the captive hinterland (where switching costs are high, see Sardent, [1938]) is
relatively small compared to the contestable hinterland (where switching costs for
shippers are low) and terminal handling companies cannot charge different prices for
cargo, depending on whether cargo is captive or not. In this case the terminal operator
does not increase revenues by raising prices, because the ‘substitution effect’ (shippers
who switch cargo to a different port) is larger than the ‘price effect’ (revenue increase
because of higher prices).
If the contestable hinterland is relatively large, or terminal operators can charge different
prices for cargo in the different segments 68 , external competition is imperfect. In container
shipping, terminal operators cannot segment the market. As a consequence, external
competition is sufficient to prevent monopoly pricing unless ports have a large captive
67 These specific cases are only relevant when entry barriers prevent entry of new firms. Legal
entry barriers exist in the majority of ports, especially in the cargo handling and port services
industries. Furthermore, high specific investments are required in the terminal handling industry
and physical conditions limit possibilities for entry. In general, entry barriers are relatively high in
the above-mentioned industries.
68 This segmentation is conceivable when terminal operators have contractual agreements with
shippers but impossible when they have agreements with shipping lines because shipping lines
can shift relatively large amounts of cargo easily between ports.