Working Paper: NBER ID: w12914
Authors: David Hummels; Volodymyr Lugovskyy; Alexandre Skiba
Abstract: Developing countries pay substantially higher transportation costs than developed nations, which leads to less trade and perhaps lower incomes. This paper investigates price discrimination in the shipping industry and the role it plays in determining transportation costs. In the presence of market power, shipping prices depend on the demand characteristics of goods being traded. We show theoretically and estimate empirically that shipping firms charge higher prices when transporting goods with higher product prices, lower import demand elasticities, and higher tariffs, and when facing fewer competitors on a trade route. These characteristics explain more variation in shipping prices than do conventional proxies such as distance, and significantly contribute to the higher shipping prices facing the developing world. Markups increase shipping prices by at least 83 percent for the mean shipment in Latin American imports. Our findings are also important for evaluating the impact of tariff liberalization. Shipping firms decrease prices by 1-2 percent for every 1 percent reduction in tariffs.
Keywords: market power; shipping prices; transportation costs; price discrimination; international trade
JEL Codes: F15; L91; O19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market power in shipping (L92) | higher shipping prices (L87) |
| higher product prices (D49) | higher shipping prices (L87) |
| lower import demand elasticities (F14) | higher shipping prices (L87) |
| higher tariffs (F19) | higher shipping prices (L87) |
| 1 percent reduction in tariffs (F13) | 12 percent decrease in transportation prices (R41) |
| number of firms (L20) | market power (L11) |
| market power (L11) | shipping prices (L87) |
| fewer competitors on trade routes (F12) | elevated shipping costs (L87) |
| non-OECD exporters (F19) | higher shipping prices than OECD exporters (F14) |