The development of liner shipping conferences: A game theoretical explanation

Using a framework of game theory, this paper explains the development of linear shipping conferences. The analysis of the noncooperative games between shippers and carriers shows the need for an institutional solution to the problems of strategically created sunk costs and competition from tramps. The emergence of price fixing cartels, loyalty contracts and deferred rebates is explained as a set of arrangements which ensure uninterrupted provision of liner services. The conclusions of the analysis are modest in that it provides a rationalization for the creation of conferences and their particular institutions, but does not necessarily imply that the set of solutions which has historically emerged is still required.