Exploring the impact of the Panama Canal expansion through game theory

Abstract

The Panama Canal is a widely discussed topic in literature, due to its unique position in connecting the Atlantic and Pacific Oceans. In 2016, an expansion of the canal was completed, allowing larger ships to pass through. This has led to a change in the calculations for many market actors involved in shipping goods through the canal and the surrounding regions. Generally, the size of container ships and the possibilities to employ them had been limited by the size of canals and the depth of ports(Cullinane and Khanna 2000). However, larger and more efficient ships can now take the shortcut through the canal, changing the calculation for alternative routes such as the Horn route around South America or the land route across North America by train.

The expansion of the Panama Canal has made it more attractive and has given more power to the authorities in charge of the canal. As a result, the factors they consider the transit fares have changed. These changes in the market may have an impact on the overall market dynamics and require closer examination. To analyze the current situation of the Panama Canal expansion, Game Theory is a tool that can help understand the interactions between different actors, where the outcome of one actor may depend on the actions of another. It is an often used tool in research when analyzing the shipping industry.