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.
Original language | English |
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Pages (from-to) | 59-77 |
Number of pages | 19 |
Journal | Review of Industrial Organization |
Volume | 45 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Jan 2014 |
Keywords
- Antitrust
- Asymmetric pass-through
- Collusion
- Freight rates
- Fuel costs
- Ocean shipping
ASJC Scopus subject areas
- Economics and Econometrics
- Strategy and Management
- Organizational Behavior and Human Resource Management
- Management of Technology and Innovation