It Pays to be big: Price discrimination in maritime shipping
Adina Ardelean, Senior Lecturer of Economics
Adina Ardelean, Volodymyr Lugovskyy, It Pays to be big: Price discrimination in maritime shipping, European Economic Review, Volume 153, 2023, 104403, ISSN 0014-2921, https://doi.org/10.1016/j.euroecorev.2023.104403.
We explore theoretically and empirically the within-route price discrimination in liner shipping and condition it on the market density. Our simple model with informational frictions predicts carrier price discrimination against smaller importing firms under the condition that the number of available carriers on the route is sufficiently large. Using transaction-level data from over 200 Chilean import port-to-port routes, we confirm our theoretical predictions and demonstrate their robustness and economic significance. Ranked by their annual importing size, importers in the 10th percentile pay 18% higher freight rates than importers in the 90th percentile, but only on routes with more than three carriers. Our results indicate that reducing market power distortion in the upstream sector (transportation) may amplify the informational friction distortion and price discrimination in the downstream sectors (importing industries).