Price Discrimination in the Transport Industry and the Gains from Trade

Abstract

This paper shows that shipping industry could hamper the endogenous firm selection into production which is conducive to overall productivity enhancement and welfare gains, through its discriminatory price. Naturally, if the shipping industry charges higher transport price to more productive manufacturing firms sabotaging their competitive edges, those productive firms would not capable to expand as well as they otherwise would do under uniform transport fees, leaving enough space for less productive firms to survive. Therefore, the effect from another source of gains from trade –- firm selection is dampened. Elimination of this discriminatory practice could potentially increase the gains from trade.