It Pays to Be Big: Price Discrimination in Maritime Shipping

Abstract

We explore theoretically and empirically the within-route price discrimination in liner shipping and condition it on the market density. Using transaction-level data from over 200 Chilean import port-to-port routes, we confirm our theoretical predictions and demonstrate their robustness and economic significance. Quantitatively, importers in the 10th percentile pay 23% higher freight rates than importers in the 90th percentile, but only on routes with more than three carriers. Our results indicate that reducing market power distortion in the upstream sector (transportation) may amplify the informational friction distortion and price discrimination in the downstream sectors (importing industries).

Keywords: International Trade Costs, Freight Rate, Firm Size Advantage, Maritime Shipping