A dynamic model for marginal cost pricing of port infrastructures

ABSTRACT

A dynamic model for marginal cost pricing of port infrastructures links costs to system performance by combining a power-law function with time-dependent queueing analysis. Additionally, the model incorporates the marginal cost of capacity, including the effects of economies of scale. This allows the calculation of the marginal cost price under a dynamic framework. The model accounts for nonlinear behaviour of port demand, which is sensitive to price and service levels. The effects over time of cost and service levels on the port’s operational performance are quantified. The proposed model allows determining the optimal timing for capacity investment. The model is a starting point for the application of marginal cost pricing to ports. However, for practical application of such pricing method it is necessary to apply a system’s approach, as productivity and costs must be assessed at the terminal’s component level. This should allow the derivation of a marginal cost function at the terminal’s component level.