Market Design for Shipbuilding-Options; An Approach Based on Experimental Economics

Abstract

A market system for shipbuilding industry is designed to establish normal competitive conditions against injurious price war. The OECD council on shipbuilding seeks a new agreement to deal with government subsidies, pricing and other practices that distort the shipbuilding market. Our alternative solution of the problem is to create a centralized market trading shipbuilding-options. The shipbuilding-option is a right, but not an obligation, to order shipbuilding at specified shipyard within a certain time period. The shipbuilding-option does not specify the ship price, which is determined by negotiations. It is probable that the shipbuilding-option market will weaken price war in shipbuilding market by giving premiums to leading shipyards. In order to investigate the utility of the shipbuilding-option market we introduce a methodology in experimental economics. Simulative market game is produced, and the game experiment by real human players is carried out. The proposed market system has a damping effect on dumping. Shipbuilding-options contribute to reliable relationships between shipbuilders and shipowners.