Abstract
ABSTRACTA game theory model is developed to study the overcapacity in shipping from ocean carriers’ strategic behavior with regard to capacity expansion in a competitive market. Capacity expansion is found to be a rational decision in both peak and trough shipping markets. The benefit of expansion is greater when the competitor also expands, but this in turn leads to chronic oversupply and Prisoner’s Dilemma. A numerical simulation is then applied to confirm the analytical results. This research explains the persistent low freight rate in shipping, and points out possible strategies for stakeholders in the shipping industry to maintain a healthy global logistics system in maritime transportation.
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