Exclusive Contracts And Market Power: Evidence From Ocean Shipping

Abstract

There is a substantial theoretical literature on the potential effects of loyalty contracts, but relatively little empirical work. We employ the event study methodology to examine the competitive effects of exclusionary contracts in the ocean shipping industry, where they were the subject of an extended legal and political struggle. We find that some of the most important events in this conflict caused significant changes in shipping firms' stock returns, indicating exclusive contracts increased their profits. We then examine the effect of these events on net exporting industries' stock returns, and provide evidence that these contracts contributed to carriers' market power.

An experimental study of exclusive contracts

“…This might prompt more antitrust attention in industries with larger opportunity or fixed costs, smaller technological advantages of the potential rival, larger scale efficiencies, or other cases that would result in a smaller fraction of signed buyers needed to deter entry. The limited empirical evidence matches this result as ocean shipping firms, who presumably have large fixed entry costs, were found to be using exclusive dealing primarily to gain market power (Marin and Sicotte, 2003). The data also show that non-binding buyer communication decreases exclusion rates.…”

“…6 Results concerning the effects of exclusive contracts also vary across examined industries. For example, studies of the beer industry (Sass, 2005;Asker, 2004) and industrial machinery and electric equipment industry (Heide et al, 1998) uncovered positive welfare effects while an investigation of the ocean shipping industry (Marin and Sicotte, 2003) concluded that exclusive contracts helped carriers increase and maintain market power. While these empirical studies are undoubtedly valuable, it might be difficult to generalize results due to industryspecific details.…”

Shipping markets in turmoil: An analysis of the Covid-19 outbreak and its implications

“… Alexandrou et al (2014) on a more extended research conclude on the positive impact of mergers and acquisitions. In a different perspective, Marín and Sicotte (2003) has shown that some oligopolistic practices that have been apparent in the shipping industry in the 50's and the 60's were having a positive effect on the stocks of the companies.…”

How an Exporter Faces the Challenges From the Maker

“…The reasons that a factory is willing to authorize an exporter to develop the overseas markets are as follows: (a) The factory is usually short of overseas business experience and manpower; it can use the exporter's experience to fast enter overseas markets (Daniels, 2016); (b) The factory wants to save its developing cost and use the existing channels to quickly develop the overseas markets; (c) The factory can make more profits through mass production (Marín & Sicotte, 2003).…”