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Market Power and Cartel Formation: Theory and an Empirical Test

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  • Filson, Darren, et al

Abstract

Antitrust enforcement makes it difficult to test theories of cartel formation because most attempts to form cartels are blocked or kept secret. However, federal laws allow U.S. produce growers to operate marketing cartels through devices called "marketing orders." These cartels use quantity controls and quality standards to raise prices of fresh produce. Some growers have adopted marketing orders, and others have not. This paper develops and tests a positive theory of the adoption of marketing orders. The theory suggests that growers in a region are more likely to adopt a marketing order if the demand for fresh produce is inelastic, the growers' market share in the fresh market is large, there are barriers to entry and expansion, the fraction of the output the growers ship to the fresh market is not too large or too small, growers are homogeneous, and large cooperatives exist. Probit analyses support these hypotheses. Copyright 2001 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 44 (2001)
Issue (Month): 2 (October)
Pages: 465-80

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Handle: RePEc:ucp:jlawec:v:44:y:2001:i:2:p:465-80

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  1. Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 99-123, April.
  2. Bartel, Ann P & Thomas, Lacy Glenn, 1985. "Direct and Indirect Effects of Regulation: A New Look at OSHA's Impact," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 1-25, April.
  3. Gardner, Bruce L, 1987. "Causes of U.S. Farm Commodity Programs," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 290-310, April.
  4. Pashigian, B Peter, 1985. "Environmental Regulation: Whose Self-interests Are Being Protected?," Economic Inquiry, Western Economic Association International, vol. 23(4), pages 551-84, October.
  5. George J. Stigler, 1974. "Free Riders and Collective Action: An Appendix to Theories of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 359-365, Autumn.
  6. Dick, Andrew R, 1996. "When Are Cartels Stable Contracts?," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 241-83, April.
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Cited by:
  1. John M. Crespi & Adriana Chacón-Cascante, 2004. "Do U.S. marketing orders have much market power? An examination of the Almond Board of California," Agribusiness, John Wiley & Sons, Ltd., vol. 20(1), pages 1-15.
  2. Matt Lindsay & Robert Deacon & Darren Filson, 2014. "Tom Borcherding," Public Choice, Springer, vol. 160(1), pages 1-6, July.
  3. Darren Filson & Bunchon Songsamphant, . "Horizontal Mergers and Exit in Declining Industries," Claremont Colleges Working Papers 2001-13, Claremont Colleges.
  4. Balagtas, Joseph Valdes & Masters, William J. & Zimmer, Timothy, 2005. "Cartel Pricing with Entry: the Experience of the Far West Marketing Order for Spearmint," 2005 Annual meeting, July 24-27, Providence, RI 19328, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.

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