TY  - JOUR
AU  - Hummels,David
AU  - Lugovskyy,Volodymyr
AU  - Skiba,Alexandre
TI  - The Trade Reducing Effects of Market Power in International Shipping
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12914
PY  - 2007
Y2  - February 2007
UR  - http://www.nber.org/papers/w12914
L1  - http://www.nber.org/papers/w12914.pdf
N1  - Author contact info:
David Hummels
Krannert School of Management
403 West State Street
Purdue University
West Lafayette, IN  47907-1310
Tel: 765/494-4495
Fax: 765/494-9658
E-Mail: hummelsd@purdue.edu

Volodymyr Lugovskyy
Department of Economics
Indiana University
Bloomington, IN 47405
E-Mail: vlugovsk@indiana.edu

Alexandre Skiba
Department of Economics, University of Kansas
1300 Sunnyside Ave
Lawrence KS 66045
E-Mail: skiba@ku.edu
AB  - Developing countries pay substantially higher transportation costs than developed nations, which leads to less trade and perhaps lower incomes. This paper investigates price discrimination in the shipping industry and the role it plays in determining transportation costs. In the presence of market power, shipping prices depend on the demand characteristics of goods being traded. We show theoretically and estimate empirically that shipping firms charge higher prices when transporting goods with higher product prices, lower import demand elasticities, and higher tariffs, and when facing fewer competitors on a trade route. These characteristics explain more variation in shipping prices than do conventional proxies such as distance, and significantly contribute to the higher shipping prices facing the developing world. Markups increase shipping prices by at least 83 percent for the mean shipment in Latin American imports. Our findings are also important for evaluating the impact of tariff liberalization. Shipping firms decrease prices by 1-2 percent for every 1 percent reduction in tariffs.
ER  -