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Excess Capacity and Entry Deterrence: The Case of Ocean Liner Shipping Markets

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  • Mike Fusillo

    () (Director, PIERS Maritime Research Servicer 33 Washington St. Newark, NJ 07102, And Adjunct Assistant Prof. New York University.)

Abstract

This paper attempts to shed light on the proposal that firms in concentrated industries may keep excess capacity to forestall entry or expansion by rivals. Excess capacity can deter entry by forming expectations on the part of potential entrants that dominant firms are capable of responding aggressively to threats. But in order to make a convincing case for excess capacity as a strategic entry deterrent, all potential sources of excess capacity must be considered simultaneously. These may include industry-specific structural factors, such as the divisibility of demand relative to supply, economies of scale or wide swings in demand. Ocean liner shipping exhibits structural factors that have led excess capacity for much of its history. It is a concentrated industry that until the late 1990s was dominated by price fixing industry groups known as liner shipping conferences. In spite of limited antitrust immunity granted by most governments to liner shipping conferences, excess capacity is and has been a persistent problem that could be a major cause of operational inefficiencies. As such, ocean liner shipping presents an ideal forum in which to distinguish between excess capacity that is an artefact of structural conditions of supply and demand and excess capacity that may be deployed as a strategic defense against opportunistic rivals. The results of a random effects model with instrumental variables show some limited support for the entry deterrence element of excess capacity in liner shipping. Maritime Economics & Logistics (2003) 5, 100–115. doi:10.1057/palgrave.mel.9100074

Suggested Citation

  • Mike Fusillo, 2003. "Excess Capacity and Entry Deterrence: The Case of Ocean Liner Shipping Markets," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 5(2), pages 100-115, June.
  • Handle: RePEc:pal:marecl:v:5:y:2003:i:2:p:100-115
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    Citations

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    Cited by:

    1. Rajesh, R. & Pugazhendhi, S. & Ganesh, K. & Ducq, Yves & Lenny Koh, S.C., 2012. "Generic balanced scorecard framework for third party logistics service provider," International Journal of Production Economics, Elsevier, vol. 140(1), pages 269-282.
    2. repec:spo:wpecon:info:hdl:2441/7o52iohb7k6srk09mit038srm is not listed on IDEAS
    3. Dong, Quan & Bárcena-Ruiz, Juan Carlos, 2015. "Does investment in capacity encourage FDI?," Economic Modelling, Elsevier, vol. 51(C), pages 58-64.
    4. Wang, Fan & Zhuo, Xiaopo & Niu, Baozhuang & He, Jiayi, 2017. "Who canvasses for cargos? Incentive analysis and channel structure in a shipping supply chain," Transportation Research Part B: Methodological, Elsevier, vol. 97(C), pages 78-101.
    5. Wang, Hua & Meng, Qiang & Zhang, Xiaoning, 2014. "Game-theoretical models for competition analysis in a new emerging liner container shipping market," Transportation Research Part B: Methodological, Elsevier, vol. 70(C), pages 201-227.
    6. Wu, Wei-Ming, 2009. "An approach for measuring the optimal fleet capacity: Evidence from the container shipping lines in Taiwan," International Journal of Production Economics, Elsevier, vol. 122(1), pages 118-126, November.
    7. Productivity Commission, 2005. "Review of Part X of the Trade Practices Act 1974: International Liner Cargo Shipping," Inquiry Reports, Productivity Commission, Government of Australia, number 32.
    8. Fabien Bertho, 2012. "The Impact of Liner Shipping Trade and Competition Regulations on The Market Structure, Maritime Transport Costs and Seaborne Trade Flows: Regulations on The Market Structure, Maritime Transport Costs," Sciences Po publications info:hdl:2441/7o52iohb7k6, Sciences Po.

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