The battle royale between local shipping companies Pasha Hawaii Transport Lines LLC and Young Brothers Ltd. is shaping up to be one of the biggest corporate fights since Hawaiian Airlines sued Mesa Air Group several years ago.

Pasha is asking the state Public Utilities Commission to open up the interisland market for the first time since statehood, saying the competition will benefit local consumers and businesses.

Young Brothers, the regulated monopoly, says Pasha will only serve the biggest ports and the most lucrative lines of  businesses such as autos, heavy equipment and construction materials.

It submitted testimony from two economists -- University of Hawaii-Manoa professor Sumner La Croix and former Bank of Hawaii Chief Economist Paul Brewbaker -- who argued that the so-called "cherry picking" will not only harm Young Brothers but will also harm local consumers and businesses. (See:)

Not to be outdone, Pasha recently submitted economic analysis by former First Hawaiian Bank Chief Economist Leroy Laney, who said that barring Pasha's entry would be tantamount to protectionism.

Laney also characterized Young Brothers as "the established monopolist"  that does "not hesitate to use what clout it has" to keep Pasha out of the market.

"Should we grant natural monopoly status to the dominant firm in each of these industries, and regulate them? This, of course, is a solution that neither the private sector nor regulators would embrace," said Laney, now an economics professor at Hawaii Pacific University.

"It would, in fact, be a step down the road to European socialism. And think of what that would do to Hawaii's now poor reputation as a business-friendly environment."

Laney's Nov. 16 report takes issue with La Croix's thesis that the interisland shipping business may be a natural monopoly.

According to Laney, Young Brothers already has had competition in the form of air cargo providers and the shortly-lived Hawaiian Superferry.

Rather than operate the same routes as Young Brothers, Laney's solution is for the PUC to take a laissez-faire approach to regulating the industry:

"The optimal solution is to regulate neither player, or at least subject them to no greater rules than exist in the oligopolistic or duopoly markets that Hawaii now has," he said.

"In that situation, both players can serve the markets they wish, at the prices the market will bear, with the types of vessels they with, with as many or few of them as they deem profitable, and so forth. And may the best player win, to that player's benefit as well as the benefit of Hawaii shippers and consumers."

Laney's argument makes sense from the standpoint of economic theory. But Laney's argument also reminds a famous saying from a German philosopher: "That may be right in theory but it won't work in practice."

Rather than an economic boon, several industries are predicting dire consequences from Pasha's entry.

In letters submitted to the PUC by Young Brothers, the Hawaii Farm Bureau Federation, the Hawaii Cattlemen's Council and the Hawaii Foodservice Alliance LLC said that Pasha won't lower rates and won't ship the bulk of their goods because they won't offer refrigeration.

The farmers and cattle ranchers currently receive shipping discounts of 30 percent to 35 percent from Young Brothers. Those discounts are subsidized by higher rates charged to more lucrative lines like autos, heavy equipment and other goods shipped between the islands.

By allowing a new competitor to "cherry pick" the lucrative lines jeopardizes their discounts and could harm industries already hard-hit by soft commodity prices, farmers and cattle rancher said.

Laney's economic analysis did not address the farmers' and cattle ranchers' plight. The PUC proceedings also doesn't give farmers and ranchers an opportunity to question Pasha about the impact on their industries.

The PUC has scheduled no hearings on the matter and will likely decide the matter based on the paper submissions filed so far.

Back in the mid 1990s when the telecommunications industry was about to explode with new competition from the Internet, wireless and other communications providers, the PUC conducted a lengthy study called the infrastructure docket.

A study like that on the impact of competition in the local shipping business could probably enhance the state agency's decision making. Public hearings also could help.