Competition and models of market structure in liner shipping: Fid-Bau Portal

Competition and models of market structure in liner shipping

Shashikumar, N.

Is liner shipping dominated by malevolent monopolies who extort shippers? Or does performance (i.e. facilitating global trade) justify the conduct of liner operators? This controversy has confounded policy‐makers and academics right from the very origin of liner shipping and continues today. In the light of the unique characteristics of liner shipping, the paper examines all postulated industrial organization models of market structure in liner shipping. It was found that the classical and neoclassical models of competition, though certainly valuable as normative standards, were insufficient for real‐world analyses of liner shipping. The attempt to use the theory of workable competition was not fruitful primarily due to the idiosyncratic view of what is workably competitive. This was followed by a review of orthodox and contemporary models of market structure in liner shipping, viz. the monopoly cartel model, the rationalization model, the neo‐Chicago/UCLA model, the empty core model, the normal‐cost price model and the contestability model. Though none of the above models are perfect, all of them have contributed towards a better understanding of liner markets. The application of contestability theory to liner shipping, in particular, has been challenged by individuals and institutions. The paper argues that though liner markets are not perfectly contestable, they are structurally contestable. Hence, the model can be used to supplement the more traditional perspectives in drawing welfare inferences of contemporary liner shipping markets.