Alliances and Concentration

177 Pages·2016·1.55 MB·English

by  John Bockrath

ALLIANCES AND CONCENTRATION:
THE ECONOMIC CONSEQUENCES OF MARKET STRUCTURE IN
THE LINER SHIPPING INDUSTRY
by
John Bockrath
A dissertation submitted to the Faculty of the University of Delaware in partial
fulfillment of the requirements for the degree of Doctor of Philosophy in Economics
Spring 2016
(cid:13)c 2016 John Bockrath
All Rights Reserved
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ALLIANCES AND CONCENTRATION:
THE ECONOMIC CONSEQUENCES OF MARKET STRUCTURE IN
THE LINER SHIPPING INDUSTRY
by
John Bockrath
Approved:
James L. Butkiewicz, Ph.D.
Chair of the Department of Economics
Approved:
Bruce Weber, Ph.D.
Dean of the Lerner College of Business and Economics
Approved:
Ann L. Ardis, Ph.D.
Senior Vice Provost for Graduate and Professional Education
I certify that I have read this dissertation and that in my opinion it meets the
academicandprofessionalstandardrequiredbytheUniversityasadissertation
for the degree of Doctor of Philosophy.
Signed:
Michael A. Arnold, Ph.D.
Professor in charge of dissertation
I certify that I have read this dissertation and that in my opinion it meets the
academicandprofessionalstandardrequiredbytheUniversityasadissertation
for the degree of Doctor of Philosophy.
Signed:
James G. Mulligan, Ph.D.
Member of dissertation committee
I certify that I have read this dissertation and that in my opinion it meets the
academicandprofessionalstandardrequiredbytheUniversityasadissertation
for the degree of Doctor of Philosophy.
Signed:
John S. Ying, Ph.D.
Member of dissertation committee
I certify that I have read this dissertation and that in my opinion it meets the
academicandprofessionalstandardrequiredbytheUniversityasadissertation
for the degree of Doctor of Philosophy.
Signed:
Matthew S. Weinert, Ph.D.
Member of dissertation committee
ACKNOWLEDGEMENTS
The author wishes to extend heartfelt thanks (in no particular order) to Michael
Arnold for endless advice, James Mulligan for the original concept that spawned this
research, John Huston and John McCusker at Trinity University for pushing me to
continue my education past the undergraduate level, the members of my dissertation
committee for patience and helpful advice, Murata Hazar at Alphaliner for help gath-
ering data, the Graduate Office and the Economics Department at the University of
Delaware for their generous funding, David Hunt for teaching me LaTeX, and my fam-
ily for having the Herculean patience necessary to put up with me for twenty seven
years.
Most of what is good about this dissertation can be traced back to those who
helped me along the way.
Any remaining mistakes belong exclusively to the author.
iv
TABLE OF CONTENTS
LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
LIST OF FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
ABSTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
Chapter
1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 LINER SHIPPING OVERVIEW AND LITERATURE REVIEW 5
2.1 Shipping Industry Literature . . . . . . . . . . . . . . . . . . . . . . . 5
2.1.1 History of Liner Shipping Market Structure . . . . . . . . . . 5
2.1.2 The End of Traditional Conferences . . . . . . . . . . . . . . . 7
2.1.3 The Modern Liner Shipping Industry . . . . . . . . . . . . . . 8
2.1.4 Literature on Liner Shipping Alliances . . . . . . . . . . . . . 12
2.2 Strategic Alliance Literature . . . . . . . . . . . . . . . . . . . . . . . 15
2.2.1 Strategic Alliances in the Broader Industrial Organization
Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2.2 Shipping Alliances and New Institutional Economics . . . . . 17
2.3 Trade Economics Literature . . . . . . . . . . . . . . . . . . . . . . . 19
2.3.1 Transportation Issues in the Theoretical Literature . . . . . . 19
2.3.2 Transportation Issues in the Empirical Literature . . . . . . . 21
3 A BASIC THEORETICAL MODEL OF LINER SHIPPING . . . 23
3.1 A Triangular World . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.2 Exporting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2.1 Output and Prices . . . . . . . . . . . . . . . . . . . . . . . . 25
v
3.2.2 Exporting Firm Equilibrium Results . . . . . . . . . . . . . . 27
3.2.3 Allowing for Variable Levels of Demand . . . . . . . . . . . . 28
3.3 Shipping Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.1 Entry and Cost Decisions . . . . . . . . . . . . . . . . . . . . 30
3.3.2 Profit Maximization . . . . . . . . . . . . . . . . . . . . . . . 32
3.3.3 Simple Shipping Firm Equilibrium . . . . . . . . . . . . . . . 34
3.4 Basic Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.4.1 Symmetrical World . . . . . . . . . . . . . . . . . . . . . . . . 35
3.4.2 Symmetrical Non-Simulated Results . . . . . . . . . . . . . . . 37
3.4.3 A as the Dominant Economy . . . . . . . . . . . . . . . . . . 39
3.4.4 A as a Dominant Economy Non-Simulated Results . . . . . . 41
3.5 Shipping Alliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.5.1 Incorporating Shipping Alliances . . . . . . . . . . . . . . . . 41
3.5.2 Equilibrium with Alliances . . . . . . . . . . . . . . . . . . . . 43
3.5.3 Alliances in the Symmetrical World . . . . . . . . . . . . . . . 44
3.5.4 Alliances without Parametrization . . . . . . . . . . . . . . . . 46
3.5.5 Alliances when A is a Dominant Economy . . . . . . . . . . . 47
3.6 Theoretical Results from the Triangular World . . . . . . . . . . . . . 49
4 A HUB-AND-SPOKE MODEL OF LINER SHIPPING . . . . . . 51
4.1 Hub-and-Spoke World . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.1.1 World Structure and Exporting Firms . . . . . . . . . . . . . 51
4.1.2 Shipping Firms . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.2 Hub-and-Spoke Baseline Outcomes . . . . . . . . . . . . . . . . . . . 56
4.2.1 Hub-and-Spoke Symmetrical World . . . . . . . . . . . . . . . 56
4.2.2 Hub-and-Spoke Symmetrical Non-Simulated Results . . . . . . 59
4.2.3 Producer-Consumer World . . . . . . . . . . . . . . . . . . . . 60
4.3 Shipping Alliances in the Hub-and-Spoke World . . . . . . . . . . . . 62
4.3.1 Alliances in the Symmetrical World . . . . . . . . . . . . . . . 63
4.3.2 Alliances in the Divided Symmetrical World . . . . . . . . . . 66
vi
4.3.3 Alliances in the Producer-Consumer World . . . . . . . . . . . 68
4.3.4 Alliances in the Divided Producer-Consumer World . . . . . . 70
4.3.5 Theoretical Results from the Hub-and-Spoke World . . . . . . 71
4.4 Theoretical Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 72
5 EMPIRICAL SPECIFICATION AND DATA . . . . . . . . . . . . . 74
5.1 Empirical Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5.2 Empirical Specification . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.2.1 Gravity Models . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.2.2 Geographic Levels in Liner Shipping . . . . . . . . . . . . . . 76
5.3 Geographic Sample Selection . . . . . . . . . . . . . . . . . . . . . . . 80
5.4 Alliance Capacity Data . . . . . . . . . . . . . . . . . . . . . . . . . . 83
5.4.1 Alliance Capacity Data . . . . . . . . . . . . . . . . . . . . . . 83
5.4.2 Historical Alliance Capacity Data . . . . . . . . . . . . . . . . 89
5.4.3 Alliance Market Share Data . . . . . . . . . . . . . . . . . . . 94
5.5 Trade Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
5.5.1 Trade Volume Data . . . . . . . . . . . . . . . . . . . . . . . . 95
5.5.2 Trade Heterogeneity Data . . . . . . . . . . . . . . . . . . . . 97
5.6 GDP Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.7 Distance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
6 EMPIRICAL COMPARISON OF THE FOUR MAJOR
ALLIANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
6.1 Basic Information on the Four Major Alliances . . . . . . . . . . . . . 103
6.2 Current Alliance Service Distribution . . . . . . . . . . . . . . . . . . 105
6.3 Historical Alliance Service Distribution . . . . . . . . . . . . . . . . . 107
6.4 Analysis of “Cross-Slotting” Behavior . . . . . . . . . . . . . . . . . . 109
7 EMPIRICAL RESULTS ON THE ECONOMIC IMPACT OF
SHIPPING ALLIANCES . . . . . . . . . . . . . . . . . . . . . . . . . 112
7.1 Alliance Effects on the International Trade System . . . . . . . . . . 113
7.1.1 Overall Trade Volume Effect of Shipping Alliances . . . . . . . 113
vii
7.1.2 Testing for Differences Amongst the Alliances . . . . . . . . . 116
7.2 Alliance Impacts on Product-Level Trade Volume . . . . . . . . . . . 118
7.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
7.2.2 Overall Shipping Alliance Impact on Product-Level Trade . . 120
7.2.3 Product-Level Results by Alliance . . . . . . . . . . . . . . . . 121
7.3 Accounting for Missing Data . . . . . . . . . . . . . . . . . . . . . . . 122
7.3.1 Overall Missing Data Results . . . . . . . . . . . . . . . . . . 123
7.3.2 Missing Data Results by Alliance . . . . . . . . . . . . . . . . 124
7.4 Empirical Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
8 THE FEASIBILITY OF REGULATING SHIPPING ALLIANCES 128
8.1 Optimal Liner Shipping Regulation given Uncertainty . . . . . . . . . 128
8.2 History of Liner Shipping Regulation . . . . . . . . . . . . . . . . . . 129
8.2.1 Historical Approaches to Regulating an International Industry 129
8.2.2 Regulation at the International Level . . . . . . . . . . . . . . 131
8.2.3 Regulation at the National Level . . . . . . . . . . . . . . . . 134
8.3 The Future of Liner Shipping Regulation . . . . . . . . . . . . . . . . 141
8.3.1 “Supra-National” Regulation . . . . . . . . . . . . . . . . . . . 141
8.3.2 The Veto of the P3 Alliance . . . . . . . . . . . . . . . . . . . 144
9 POLICY IMPLICATIONS AND CONCLUSION . . . . . . . . . . 148
BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Appendix
A GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
viii
LIST OF TABLES
2.1 Historical Alliances . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Currently Active Alliances . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Alliance Impact on HHI Concentration . . . . . . . . . . . . . . . . 14
5.1 Alliance Market Share Data by Year . . . . . . . . . . . . . . . . . 95
5.2 Bilateral Trade Summary Statistics . . . . . . . . . . . . . . . . . . 97
5.3 Product-Level Bilateral Trade Summary Statistics . . . . . . . . . . 99
5.4 GDP Summary Statistics for Importing Nations. . . . . . . . . . . 100
5.5 GDP Summary Statistics for Exporting Nations . . . . . . . . . . . 100
5.6 Distance Summary Statistics . . . . . . . . . . . . . . . . . . . . . . 102
6.1 Current Alliance Behavior . . . . . . . . . . . . . . . . . . . . . . . 106
6.2 Per-Service Capacity Evolution over Time . . . . . . . . . . . . . . 107
6.3 Total Capacity Evolution over Time . . . . . . . . . . . . . . . . . 108
6.4 Number of Services over Time . . . . . . . . . . . . . . . . . . . . . 109
6.5 Committed Ships over Time . . . . . . . . . . . . . . . . . . . . . . 109
6.6 Alliance Purchase Matrix . . . . . . . . . . . . . . . . . . . . . . . 110
7.1 Overall Shipping Alliance Effects . . . . . . . . . . . . . . . . . . . 113
7.2 Disaggregated Alliance Results . . . . . . . . . . . . . . . . . . . . 117
7.3 Overall Shipping Alliance Impact on Product-Level Trade . . . . . 120
ix