The Liberalization process of the Ferry System in Greece, 2001 - 2014 (August): What are the benefits to users of Aegean Sea Transportation?

Abstract

The great deficits created in the pursuit of the Keynesian welfare state led to governmental
failure. This increasingly posed a greater risk to financial system than market failure, due to
the increasing scale effects. Competition ceases to exist. The operations of markets first
described by Adam Smith (1776) and confirmed by Alfred Marshall (1920). As a result of the
increasing risk of governmental failure, legal barriers to ‘entry’ removed (liberalization) and
private ownership promoted (privatization). Here, we investigate the impact of the
‘liberalization processes of (private)’ ‘Aegean Ferry System’ since 2001, and look at the effect
on passenger fares and private cars freight rates under ‘free entry’. Quality of service was
never regulated…We showed the existence of increasing returns to scale in the ferry system
and in the individual ship, basing our arguments on empirical data and on theory. The fixed
cost of the ferry system is 68%, indicating failure of the ferry market, when prices had to be
determined by marginal cost leading to operational losses, since average cost is twice greater
than marginal cost. Despite the hopes of the users that Greek Aegean ferry system’s
liberalization would lead to reduction in fares and freight rates, this did not happen. Reforms
paralleled those in air transport in USA, and a similar “hub and spoke” network system
proposed and adopted careless by Greece, following the ΣΕΘΑΜ study. Fares and private car
freight rates rose in a series of waves, owners frequently blaming the rising oil prices…
JEL Classification : D4, L1, R49.
Keywords: Liberalization of the Greek Aegean Ferry system, Fares and freight rates, increasing returns to scale