Do maritime passengers’ subsidies in Europe affect prices?

ABSTRACT

Some European governments subsidize their residents when they travel at sea. This paper seeks to analyze the impact on prices of maritime passengers’ subsidies in Europe. Following a review of the scarce academic literature on this topic and the subsidy scheme in Europe, a sample of firms’ prices and other characteristics of 40 European routes for 2016 are analyzed. Both an estimation of a price equation and a matching approach are applied and reach the same conclusion: prices per kilometer are around 40 per cent higher on those subsidized routes due to subsidies. This outcome reduces the potential subsidy gain to consumers.

KEYWORDS:

• Maritime
• subsidies
• Europe

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Transport authorities may provide also subsidies to ferry companies (i.e. subsidy per itinerary) apart from subsidies directly to resident. In these cases, all passengers (not only residents) are benefited from the subsidy. This analysis will be a good subject for further research, and whether the possible effects of the subsidy will be the same.

2. For example, Article 349 of the Treaty on the Functioning of the European Union allows for the special situation of the outermost regions to be taken into account when defining EU policies (Solbes-Mira 2011): ‘‘Taking account of the structural social and economic situation of Guadeloupe, French Guiana, Martinique, Réunion, Saint-Barthélemy, Saint-Martin, the Azores, Madeira and the Canary Islands, which is compounded by their remoteness, insularity, small size, difficult topography and climate, economic dependence on a few products, the permanence and combination of which severely restrain their development, the Council, on a proposal from the Commission and after consulting the European Parliament, shall adopt specific measures aimed, in particular, at laying down the conditions of application of the Treaties to those regions, including common policies’’.

3. For example, see the seminal paper of Mohring (1972) or Pucher, Markstedt, and Hirschman (1983) for urban bus transportation.

4. In this paper, we focus on subsidies given to resident passenger who travel by ferries, so maritime literature focus on it. Recent papers about cruise markets are: Sanz-Blas, Carvajal-Trujillo, and Buzova (2017), Chen, Lijesen, and Nijkamp (2017) or Lee and Lee (2017).

5. For a general perspective, see Nolan, Ritchie, and Rowcroft (2005), who analyzes the social welfare implications for various types of regulations (direct subsidies, protected route packages, and revenue guarantees).

6. For example, for the Canary Islands in Spain, there are 13 routes affected, which include regulations on frequency, schedule, capacity and operation timetable (Resolution of 21 July 2006 of the Sub-Secretariat, about the publication of the Council of Ministers Agreement of the 2 June 2006 (available at http://www.fomento.gob.es/NR/rdonlyres/50376DAE-D44B-453C-B5BE-A6706646B2C6/110159/RESO_2162006.pdf).

7. In a recent paper, Fageda, Jiménez, and Valido (2017) show that this kind of policy has not worked for European routes in air transport markets. They compare routes with and without resident subsidy and/or PSO through data extracted from five different countries.

8. http://ec.europa.eu/competition/state_aid/overview/index_en.html.

9. Moreover, it adds: ‘To be State aid, a measure needs to have these features: There has been an intervention by the State or through State resources which can take a variety of forms (e.g. grants, interest and tax reliefs, guarantees, government holdings of all or part of a company, or providing goods and services on preferential terms, etc.); the intervention gives the recipient an advantage on a selective basis, for example to specific companies or industry sectors, or to companies located in specific regions; competition has been or may be distorted; the intervention is likely to affect trade between Member States.’

10. Currently, there are nine Outermost Regions in the European Union: Guadeloupe, French Guiana, Martinique, La Réunion, Mayotte (French overseas departments); Saint-Martin (French overseas community); Madeira and Azores (Portuguese autonomous regions) and Canary Islands (Spanish autonomous community).

11. http://www.gov.scot/Publications/2014/10/2706/16.

12. 2013/435/EU: Commission Decision of 2 May 2013 on State aid SA.22843 (2012/C) (ex 2012/NN) implemented by France in favor of Société Nationale Maritime Corse-Méditerranée (available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32013D0435).

13. Four of the most widely matching methods are the Nearest Neighbor, Radius, Stratification and Kernel. None of these are a priori superior to the others. See Becker and Ichino (2002) for a further explanation.