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Strategic capacity competition and overcapacity in shipping

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  • Ying Kou
  • Meifeng Luo

Abstract

A 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.

Suggested Citation

  • Ying Kou & Meifeng Luo, 2016. "Strategic capacity competition and overcapacity in shipping," Maritime Policy & Management, Taylor & Francis Journals, vol. 43(4), pages 389-406, May.
    • Handle: RePEc:taf:marpmg:v:43:y:2016:i:4:p:389-406
    DOI: 10.1080/03088839.2015.1105395
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    3. Yap, Wei Yim & Hsieh, Cheng-Hsien & Lee, Paul Tae-Woo, 2023. "Shipping connectivity data analytics: Implications for maritime policy," Transport Policy, Elsevier, vol. 132(C), pages 112-127.
    4. Alexandros M. Goulielmos, 2018. "“After End-2008 Structural Changes in Containership Market” and Their Impact on Industry’s Policy," IJFS, MDPI, vol. 6(4), pages 1-21, November.
    5. Peng, Wenhao & Bai, Xiwen, 2022. "Prospects for improving shipping companies’ profit margins by quantifying operational strategies and market focus approach through AIS data," Transport Policy, Elsevier, vol. 128(C), pages 138-152.
    6. Kou, Ying & Luo, Meifeng, 2018. "Market driven ship investment decision using the real option approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 714-729.
    7. Gong, Xiaoxing & Wu, Xiaofan & Luo, Meifeng, 2019. "Company performance and environmental efficiency: A case study for shipping enterprises," Transport Policy, Elsevier, vol. 82(C), pages 96-106.
    8. Wang, Junjin & Liu, Jiaguo & Wang, Fan & Yue, Xiaohang, 2021. "Blockchain technology for port logistics capability: Exclusive or sharing," Transportation Research Part B: Methodological, Elsevier, vol. 149(C), pages 347-392.
    9. Liu, Jiaguo & Wang, Junjin, 2019. "Carrier alliance incentive analysis and coordination in a maritime transport chain based on service competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 333-355.
    10. Zhang, Yanfang & Zhang, Ming & Liu, Yue & Nie, Rui, 2017. "Enterprise investment, local government intervention and coal overcapacity: The case of China," Energy Policy, Elsevier, vol. 101(C), pages 162-169.
    11. Pache, Hannah & Grafelmann, Michaela & Schwientek, Anne Kathrina & Jahn, Carlos, 2020. "Tactical planning in tramp shipping - A literature review," Chapters from the Proceedings of the Hamburg International Conference of Logistics (HICL), in: Jahn, Carlos & Kersten, Wolfgang & Ringle, Christian M. (ed.), Data Science in Maritime and City Logistics: Data-driven Solutions for Logistics and Sustainability. Proceedings of the Hamburg International Conferen, volume 30, pages 281-308, Hamburg University of Technology (TUHH), Institute of Business Logistics and General Management.
    12. Wang, Jian & Zhu, Wenbo, 2023. "Analyzing the development of competition and cooperation among ocean carriers considering the impact of carbon tax policy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 175(C).

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