Journal of Korea Trade

Korea Trade Research Association (한국무역학회)
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The Nationality Effect of Price Discrimination in the Container Shipping Market and Its Implications for Development Economics: Treating Hanjin Shipping's Collapse as a Natural Experiment

  • Ko, Byoung-Wook (Shipping Policy Research Department, Korea Maritime Institute)
  • Received : 2020.05.07
  • Accepted : 2020.09.28
  • Published : 2020.10.31
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Abstract

Purpose - International trade leads to the international division of labor, improving the efficiency of the global economic system. Transport costs are a more serious barrier to international trade than customs tariffs. An increase in competition in the transport sector may thus lead to a reduction in transport costs. However, if a carrier's nationality significantly influences transport costs, simply adding more competing carriers of different nationalities would be ineffective. Therefore, it is necessary to establish national or regional carriers to influence competition and reduce transport costs. This study investigates this "nationality effect" by treating Hanjin Shipping's collapse as a natural experiment. Design/methodology - The theoretical basis of this study is the 3rd-degree price discrimination in container shipping market. By using the monthly data of container freight rates of Korea, China and Japan, this study shows the so-called Korea Premiums, which are the empirical counterparts of nationality effect in Korea container shipping market. For this empirical investigation, the structural model with state-space form is used and the dummy models are also estimated. In addition, because China has been also affected by the Hanjin's collapse, the China premiums are considered too. Findings - Compared with Japan's case, it is shown that there had been the so-called Korea premiums since the collapse of Hanjin Shipping. These results are robust from both the state-space model and dummy models. The time pattern of Korea premiums was consistent with the market evolution, especially the pattern of substitutability in container shipping markets. In addition, this paper shows the magnitude of Korea premiums. Originality/value - The argument of this study that the nationality effect can be interpreted as an extended concept of the home market effect is original, which is expected to evoke future research efforts. Further, the discussion on the shipping industrial policy from both horizontal and vertical aspects will provide the relevant policy makers with solid information, especially for the policy coordination in a global scale.

Keywords

Acknowledgement

The author would like to thank Dr. Kwang-Soo Kil, Prof. Kwanho Shin, Prof. Cheolbeom Park, Prof. Jaehyon Nahm, Prof. Kyuho Kang and Prof. Moonsung Kang for their helpful comments and advice. The author is also grateful to the three anonymous reviewers for their comments and suggestions. All of their recommendations have substantially improved the study. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

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