Organizational Form, Tariff Protection and Free Trade in Port Competition

Abstract Incorporating public port ownership structures and port usage fees into the reciprocal trade model, we analyze the endogenous firms' choice of organization form facing trade policies. When ports are in public ownership under free trade, U-form emerges as an equilibrium even though choosing M-form for governments is socially desirable. These results are reversed (i.e., M-form is an equilibrium) in public port ownership under the tariff regime when choosing the organization form. However, choosing M-form under the tariff regime is Pareto efficiency for firms and social welfare. Contrast to previous results, in the case of Cournot competition, social welfare, consumer surplus and firm's profit under the tariff regime are greater than those under free trade.