Abstract
This paper analyzes the impact of container shipping alliances on the market stability of prices and volumes in the event of an unexpected shock. Given two complementary or substitutable ports in which oligopolistic liners are operating, an alliance between complementary liners, referred to as “global alliance”, enhances their strategic complementarity, which makes shocks more easily propagating among ports and increases volatility of the price and volumes of shipping services. Furthermore, due to incomplete adjustment of production facilities of shippers facing unexpected shocks, the shipping demand in the short term is less elastic than that in the long term. It is shown that the increased market volatility of global alliance causes a greater decline in shippers' benefit under a shock through i) shippers' inefficient investment and ii) an excessive price increase in transportation services, while the liners’ profit may even increase owing to the second effect.
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