Port Construction Investment with Game Theory

This paper aims to find a way to form a port cluster with rational development. Based on demand-supply balance, Game Theory was used to analyze the mechanism of decision-making of port construction investment. Under the hypothesis of information symmetry, and a duopoly market, we established both a static game model and an extensive game model with perfect information to analyze the decision-making process, while the object is to maximize each port's investment profit under individual rationality. Besides, the paper introduced a dummy variable to describe the influence of local financial supports. The outcome shows that both players prefer to invest for new constructions, no matter they make decisions simultaneously or not. And it can also be extended to multi-players. In the end, we made a Pareto improvement by setting up a cooperation mechanism. The results indicate that the collective rationality of port construction investment can be achieved by setting up a binding agreement among regional ports, such as co-investment, joint-stock operation and dock purchase, while each player's profit could be improved.