Market Structure, Sustainability and Decision Making
NECTAR Series on Transportation and Communications Networks Research
Edited by Thomas Vanoutrive and Ann Verhetsel
Chapter 6: Persistence of profits in the container liner shipping industry
Since the seminal work of Bain (Barriers to New Competition: 1956) and Baumol et al. (Contestable Markets: 1982), a vast amount of literature has studied the entry/exit conditions for various industries to determine the extent to which established firms or incumbents need to fear competition from outside the market. While the role of entry and exit has been dealt with in shipping literature in general (for example, Brooks, 2000; Cullinane and Khanna, 2000) and with regard to liner conferences (for example, Heaver, 1973; Davies, 1983 and 1986), the study of entry and exit conditions has been ignored for the containerised liner shipping industry. Entry conditions should determine the extent to which established liner operators need to fear competition from potential entrants. The threat of entry cannot be neglected. Geroski and Jacquemin (1988, p. 375) stated that ‘entry does not need to occur in order to have effect on the behaviour of firms in markets, the mere threat of large scale imitation may lead incumbent firms to take pre-emptive actions which both lower their current period profit and discourage potential entrants from actually entering’. Observing patterns in time-series variation of firm-level profit rate data allows us to draw inferences about the actual and potential entry/exit.
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