Industry Dynamics with Cartels: The Case of the Container Shipping Industry

Suguru Otani
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Suguru Otani: Market Design Center, University of Tokyo and Junior Research Fellow, Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN

No DP2024-28, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: I investigate how explicit cartels, known as "shipping conferences", in a global container shipping market facilitated the formation of one of the largest globally integrated markets through entry, exit, and shipbuilding investment of shipping firms. Using a novel data, I develop and construct a structural model and find that the cartels shifted shipping prices by 20-50% and encouraged firms' entry and investment. In the counterfactual, I find that cartels would increase producer surplus while slightly decreasing consumer surplus, then may increase social welfare by encouraging firms' entry and shipbuilding investment. This would validate industry policies controlling prices and quantities in the early stage of the new industry, which may not be always harmful. Investigating hypothetical allocation rules supporting large or small firms, I find that the actual rule based on tonnage shares is the best to maximize social welfare.

Pages: 61 pages
Date: 2024-08
New Economics Papers: this item is included in nep-com, nep-ent, nep-mac and nep-reg
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