Does antitrust immunity matter for complementary shipping alliances? Competition and welfare analysis

Abstract

Shipping alliances are granted antitrust immunity (ATI) as a cooperative strategy for market development. However, the European Commission has ruled that these alliances no longer benefit from ATI treatment within the European Union (EU), raising concerns among governments about the implications for alliances and their associated ATI privileges. We analyze the alliance strategies of shipping companies, shippers’ consumer surplus, and governments’ social welfare in local and intermodal markets, focusing on service differentiation and economies of scale. We examine equilibrium decisions within three typical structures—no alliance, single alliance, and double alliance. Results show that shipping alliances significantly influence strategic decisions by lowering freight rates through the internalization of negative externalities from independent pricing. For both alliances and independents, moderate-scale economies and service differentiation reduce freight rates while increasing demand. Shipping companies form alliances to enhance competitiveness when these factors are significant, producing higher consumer surplus and social welfare. However, in markets with low service differentiation and scale economies, new alliances can undermine the benefits of both pre-existing alliances and independents. In such cases, social welfare is higher without alliances, and canceling alliance agreements may be a better market decision.