Optimal emission control under public port rivalry: A comparison of competitive and cooperative policy

This study examines the optimal emission control at two competing public ports. We first develop a two-stage duopoly model in which governments determine the emission standard that restrains shipping operators’ fuel quality and ports are involved in price competition, taking the emission standards as given. Then, non-cooperative and cooperative emission control cases are analyzed. The main result of this study is surprising. The results suggest that shipping operators bear fuel cost, congestion externality cost, and port price. The port price comprises markups from market power, congestion externality, and emission externality cost. Regardless of cooperation and governments’ knowledge of port pricing, the emission standard is optimal if and only if shipping operators’ fuel cost equals the emission externality cost.