Air Cargo Market Structure, Intermodal Competition, and Prices: Evidence from Chinese Imports from Europe

Abstract

While about one third of international trade by value is shipped by air, the air cargo market itself remains understudied in the academic literature. A scant literature on air transport and international trade so far has focused only on air passenger travel (e.g Alderighi and Gaggero, 2017). Our contribution starts filling up this gap by examining the impact of air cargo market structure on shipment price and the share of product shipped by air - our measure of the extent of intermodal competition. We examine the data on goods imported into China from Europe, using a rich Chinese Customs dataset. We regress import share by air and shipment price on the air accessibility index (our measure of air cargo market structure) and a number of control variables, taking into account product, country, year, and firm specific heterogeneity. We employ instrumental variables estimation to tackle the inherent endogeneity, using air accessibility index on other markets as an instrument. Our preliminary results show robust relationships between our measure of air cargo accessibility on one hand and both the share of products shipped by air and shipment price on the other. Other things equal, the more concentrated the air cargo market is, the smaller the share of the product shipped by air as opposed to other modes of transport, and the higher the shipment price. Therefore, the easier the air cargo accessibility is, the higher share of import by air. For larger firms and firms with more products, the effects of air cargo accessibility are stronger. Compared with private firms, the effects for State firms are smaller while the effects for foreign firms are stronger.