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Trade Associations: Why Not Cartels?

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  • David K. Levine
  • Andrea Mattozzi
  • Salvatore Modica

Abstract

The relevance of special interests lobbying in modern democracies can hardly be questioned. But if large trade associations can overcome the free riding problem and form effective lobbies, why do they not also threaten market competition by forming equally effective cartels? We argue that the key to understanding the difference lies in supply elasticity. The group discipline, which works in the case of lobbying, can be effective in sustaining a cartel only if increasing output is sufficiently costly—otherwise the incentive to deviate is too great. The theory helps organizing a number of stylized facts within a common framework.

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  • David K. Levine & Andrea Mattozzi & Salvatore Modica, 2021. "Trade Associations: Why Not Cartels?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 47-64, February.
    • Handle: RePEc:wly:iecrev:v:62:y:2021:i:1:p:47-64
    DOI: 10.1111/iere.12487
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    Cited by:

    1. Martins, Pedro S., 2020. "What Do Employers' Associations Do?," IZA Discussion Papers 13705, Institute of Labor Economics (IZA).
    2. James A. Schmitz, 2020. "Solving the Housing Crisis will Require Fighting Monopolies in Construction," Working Papers 773, Federal Reserve Bank of Minneapolis.
    3. David K. Levine, 2021. "Fine cartels," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(2), pages 155-166, October.
    4. David K Levine, 2020. "Fine Cartels," Levine's Working Paper Archive 786969000000001554, David K. Levine.

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