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Review of Industrial Organization

, Volume 45, Issue 1, pp 59–77 | Cite as

Ocean Carriers’ Collusion Under Antitrust Immunity: Evidence of Asymmetric Pass-Through

  • Michael K. Fung
Article

Abstract

As fuel costs are the largest component of the shipping industry’s operating costs, this study examines whether ocean carriers pass fuel cost increases through to freight rates more quickly than they pass through fuel cost decreases. The focal price collusion theory suggests that such asymmetric pass-through could be a result of collusive behavior because collusion is easier to sustain when costs are falling than when costs are rising. Using a lag-adjustment model as the econometric framework, findings from this study show strong evidence for asymmetric adjustments of the US inbound freight rates in response to fuel cost changes. Such asymmetry persisted after the passage of the Ocean Shipping Reform Act of 1998. Moreover, the findings do not support the consumer search theory as an alternative explanation for the freight rate asymmetry.

Keywords

Ocean shipping Collusion Antitrust Asymmetric pass-through Freight rates Fuel costs 

Notes

Acknowledgments

The work described in this paper was supported by a grant from the Hong Kong Research Grant Council (Project No.: 4-ZZAY). The author thanks Professor Lawrence White (the Editor) and the two anonymous referees for their extensive and thoughtful comments.

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Faculty of BusinessHong Kong Polytechnic UniversityHung HomHong Kong

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