Iterated Cooperation and Possible Deviations between Liner Shipping Carriers Based on Noncooperative Game Theory

Abstract

The top liner shipping carriers have already established alliances in the shipping industry and are investigating new business connections with customers, suppliers, competitors, consultants, and other companies. Several studies have attempted to explain this phenomenon using a variety of conceptual and theoretical frameworks. This paper focuses on liner shipping strategic alliances and their establishment and transformation within the framework of noncooperative game theory, which is considered an effective tool to analyze motivations, competitive structures, strategies, and potential payoffs in a number of industries, including the turbulent liner shipping industry. Not only can a liner shipping company be seen as a player in a shipping alliance, but a liner shipping strategic alliance itself can be viewed as a player when it competes with other alliances. In this paper, more attention is paid to the former situation by assuming that those liner companies are unable to make enforceable contracts through outside parties. This paper aims to (a) indicate the motivations for short-term cooperation among several liner carriers, (b) analyze the pros and cons of being a member of a liner shipping strategic alliance, (c) explain a player's deviation or departure behavior when it faces turbulence and unpredictable shipping circumstances, and (d) recommend ways to enhance long-term alliance stability by increasing benefits while decreasing drawbacks. Of those four main points, the differences between short-term cooperation and long-term alliance are the number of subgames and the potential future payoff. Specific models based on the assumption of noncooperative behavior are set up as iterated games to give those differences clear explanations. The outcome of this paper will be helpful for liner shipping carriers attempting to succeed in the shipping industry with greater efficiency, better customer service, and lower cost.