An empirical model of changing global competition in the shipbuilding industry

We developed an empirical model to explain the changing global competition among major countries involved in the shipbuilding industry over the last three decades. In order to develop future strategies for not only shipbuilding companies but shipping companies and governments, it is necessary to understand the past logic of their competitive strategies. Using the real strategic behaviours and decision rules of shipbuilding companies derived through a literature survey and interviews, we developed a model using the Cournot oligopoly with Choquet Expected Utility (CEU) theory. Three national players, Japan, Korea and China, are supposed to be either optimistic or pessimistic, which allows us to incorporate the different attitude of the players into the demand uncertainty for our model. Competitive reaction functions are derived and compared with the estimation results via multiple regression with annual shipbuilding tonnage data. Our results provide strong evidence that the major players are bound to use simple rules for competitive quantity decisions, but change the rules completely when they become ineffective. In addition, the competitive behaviour of the players depends on both the degree of demand uncertainty and the different attitudes of the players towards uncertainty.