Abstract
Entrepreneurs exploit market opportunities and innovate to achieve or maintain strategic advantage over their competitors. In the absence of government regulation, entrepreneurs are free to focus on improving satisfaction of customer wants, for example, by enhancing current goods, supplying new goods, or supplying established goods at lower cost. In a regulated market, entrepreneurs focus on satisfying regulatory authorities, for example, to earn rate increases, subsidies, or tax benefits. Economists normally conceptualize regulation as restricting entrepreneurial choice over prices charged, including general prohibitions against price discrimination, or as imposing additional costs on business enterprises through mandating actions entrepreneurial planners would not otherwise have chosen, or prohibiting actions which would have been freely chosen. This paper examines the role of a specific regulatory agency, the Federal Maritime Commission, and its regulatory oversight of the maritime shipping sector. Business strategy and public policy implications will be developed, as well as implications for the growth and development of the shipping industry. The history and nature of government intervention in the maritime sector will be reviewed. The presence of a regulatory authority at least partly substitutes a kind of bureaucratic sovereignty over the consumer sovereignty of an unregulated market. Regulated firms compete for favors from the regulatory authority, and in a regulated environment strategic advantage is directed away from entrepreneurial planners to political entrepreneurs.
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Notes
Under the Foreign Shipping Practices Act of 1988 and Section 19 of Merchant Marine Act of 1920, the Commission is obligated to protect U.S. shipping trades from unfair foreign practices. One aspect of this responsibility is the need to remove nonmarket barriers from ocean transportation in foreign ports. These laws provide authority for countervailing action to impose penalties on foreign flag carriers who adversely affect U.S. carriers through nonmarket forces. Though this authority is used very little, it acts as a deterrent.
The Commission has a longstanding and a very effective record of dealing with a host of foreign government practices in various trades. We have addressed restrictions against third-flag carriers in our trade with Ecuador, Venezuela and Colombia; laws preventing U.S. companies from establishing subsidiaries in the PRC; discrimination against non-Korean intermediaries by the Republic of Korea; restrictions on U.S. flag carriage of military cargo to Iceland; and general cargo reservation schemes in Argentina, Brazil, and Peru. (Speech, U.S. Federal Maritime Commission, 1997)
More recently, the Commission has intervened to reverse adverse actions by Brazil, where a labor action prevented U.S. ships from being unloaded; and Japan where discriminatory terminal access fees were impeding U.S. ships from access to that market. In the case of Japan, the U.S. Coast Guard turned back Japanese ships until an agreement to provide equal access to U.S. and Japanese port facilities was finalized.
The U.S. Federal Maritime Commission investigates allegations of price discrimination. Because discussion agreements may result in uniform price-setting, the Antitrust Division of the U.S. Department of Justice could not prosecute participants for their part in a government authorized activity. The Antitrust Division could still prosecute firms for charging anticompetitive prices. The Commission plays no role in regulating prices beyond enforcing the prohibition against price discrimination and enforcing the requirement that tariff increases be published with 30 days advance notice. The prohibition against price discrimination prevents collusive oligopolists from extracting all consumer surplus through acting as a perfectly discriminating monopolist. Some scope for price discrimination remains in that service contracts are exempt from the prohibition. Prior to 1984, the Commission did review and sometimes comment on proposed tariff increases.
Controlled carriers, that is, foreign-government-owned carriers, are subject to a 30 day advance notice requirement for both price increases and decreases. The Federal Maritime Commission reviews controlled carrier rates for reasonableness, unlike with privately-owned firms. APL, formerly American President Lines and now a Singaporean controlled carrier, recently received an exemption to this requirement because it had no service contracts which would have avoided the regulation.
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The views expressed in this article are those of the authors and do not necessarily represent the views of the United States Merchant Marine Academy, the Maritime Administration, the Department of Transportation, the U.S. Federal Maritime Commission, or any other U.S. Government agency. Thanks are due to William L. Anderson and an anonymous referee for helpful and constructive comments. The authors remain responsible for any shortcomings.
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Mulligan, R.F., Lombardo, G.A. Entrepreneurial Planning in a Regulated Environment: the U.S. Federal Maritime Commission and the Maritime Industry. Quart J Austrian Econ 11, 106–118 (2008). https://doi.org/10.1007/s12113-008-9036-4
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DOI: https://doi.org/10.1007/s12113-008-9036-4