The Demise of Regulation in Ocean Shipping: A Study in the Evolution of Competition Policy and the Predictive Power of Microeconomics

Over its 140 year history, ocean liner shipping has almost always enjoyed an antitrust exemption permitting price-fixing cartels of ocean carriers. The exemption was premised on the belief that problems of cost and capacity inherent in the trade can be resolved only by horizontal collusion. Now that that exemption has been whittled away by deregulatory efforts, the preand post-deregulation evidence presents one of the world's rare opportunities for natural experiment on the behavior and effectiveness of collusive cartel pricing. Moreover, because normal and effective competition never really existed prior to 1998, the normative foundation of the antitrust exemption was based almost entirely on theoretically modeled economic arguments. Observing the industry's behavior under deregulation is therefore a before-and-after opportunity to test the predictive accuracy of at least one body of economic argument. Finally, the evolution of shipping policy is also part of a larger historiography-the shipping exemption reflects the larger story of government efforts to cope with the problems of industrial organization. * Assistant Professor of Law, Cleveland State University; I welcome all feedback at csagers@law.csuohio.edu. My thanks for feedback to Peter Carstensen and Spencer Weber Waller. Steve Calkins provided substantial comments on a slightly different version. This Article builds on formal comments drafted by the Author on behalf of the Section of Antitrust Law, American Bar Association, for submission by the Section to the U.S. Antitrust Modernization Commission, an ad hoc expert body empanelled by Congress in 2002. The Section's official comments are available at http://www.amc.gov/ publicstudies fr28902/immunities-exemptions pdf/060317_ABAShippingAct.pdf. HeinOnline -39 Vand. J. Transnat'l L. 779 2006 780 VANDERBIL T]OURNAL OF TRANSNA TIONAL LAW