Impact of Incomplete Information on Bargaining Efficiency in a Bilateral Oligopoly Market : Evidence from the Containership Time Charter Market
Date of Award
2026
Document Type
Thesis
Degree Name
Doctor of Philosophy in Maritime Affairs
Specialization
Ph.D (Maritime Affairs)
Campus
Malmö, Sweden
Abstract
A well-established body of bargaining studies theoretically demonstrates that inherent limitations in observing the counterplayer’s private information shape a mutual incomplete information setting in bargaining, leading to efficiency losses associated with mispricing, costly delays, and even bargaining failures. As the shipping market – a business-to-business market in which products are generally heterogeneous and the number of both sellers and buyers is limited by high entry/exit barriers – relies on a bargaining mechanism to determine tailored transaction prices, market pricing is prone to analogous inefficiencies arising from incomplete information. However, the relevant empirical evidence remains underexplored in both the shipping finance and bargaining literatures, primarily because of data unavailability. Using the containership time charter market as an empirical case, this study aims to unveil the latent loss of bargaining efficiency arising from mispricing due to incomplete information in a bilateral oligopoly context.
Reviewing the bargaining literature, this study develops a conceptual framework for an efficient bargaining mechanism from a mispricing perspective, drawing on a mechanism design framework. This conceptual framework highlights the formation of an incomplete information setting and the optimal pricing outcome that achieves Pareto efficiency whilst maximising joint utility in a bilateral bargaining context. For operationalisation, the study proposes a two-tier stochastic frontier framework and corresponding specifications to estimate unobservable bargaining determinants – namely, ex-post true and interim perceived reservation prices, benchmark price, and relative bargaining power – that jointly determine a Pareto-efficient transaction price under a cooperative bargaining approach.
Using 8,576 observations of containership time charter contracts, the unobservable bargaining determinants are uncovered, enabling (i) the quantification of incomplete information and (ii) the measurement of price bargaining efficiency by postulating the generalised Nash bargaining solution as the optimal pricing outcome in a bilateral oligopoly market. The results reveal statistically significant incomplete information and bargaining inefficiency, with sample means of 7.5% and 5.0%, respectively. Notably, despite the expertise and extensive experience of the shipping market players, approximately 20% of time charter contracts exhibit mispricing-driven latent inefficiency exceeding 10%. Given the sample’s total contract value of USD 41.3 billion, the estimated efficiency loss is economically non-negligible. Finally, a simple linear regression indicates a significantly negative relationship between incomplete information and price bargaining efficiency, with a coefficient of -0.703 and an adjusted R- squared of 0.748, consistent with theoretical predictions in bargaining studies.
Academically, this study makes crucial contributions by illuminating mispricing-driven inefficiency due to incomplete information, an issue that has been neglected vis-à-vis visible delays and agreement failure in the bargaining literature. The study also offers an estimation framework that quantifies unobservable bargaining determinants, thereby providing empirical evidence on the negative relationship between incomplete information and bargaining efficiency. Furthermore, the findings of this study could motivate the shipping finance literature to explore the dynamics of individual transaction prices, shifting the analytical focus from macro-level time-series volatility to micro-level cross-sectional price dispersion. From a practical perspective, the study is expected to stimulate wider discussion among shipping market practitioners on latent losses in transaction utility. In doing so, it may encourage the development of more desirable bargaining strategies and more efficient over-the-counter transaction mechanisms, enhancing both individual and mutual transaction utilities.