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Voting in Cartels: Theory and Evidence from the Shipping Industry

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  • Cesar Martinelli

    ()
    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

  • Richard Sicotte

    ()
    (Economics Department, University of Vermont)

Abstract

We examine the choice of voting rules by legal cartels with enforcement capabilities in the presence of uncertainty about demand and costs. We show that cartels face a trade-off between the commitment advantages of more stringent majority requirements and the loss of flexibility resulting from them. Expected heterogeneity in costs or demand conditions leads away from simple majority toward more stringent rules, while larger membership to the cartel leads away from unanimity toward less restrictive rules. Evidence from the shipping conferences of the late 1950s largely supports our model. With few firms, the rule favored by heterogeneous conferences is unanimity. In larger cartels, the favored rule is either 2/3 or 3/4-majority rule.

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Bibliographic Info

Paper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 0404.

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Length: 19 pages
Date of creation: Feb 2004
Date of revision: 05 Mar 2004
Handle: RePEc:cie:wpaper:0404

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  1. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, Econometric Society, vol. 52(5), pages 1219-40, September.
  2. Giovanni Maggi & Massimo Morelli, 2003. "Self Enforcing Voting in International Organizations," NBER Working Papers 10102, National Bureau of Economic Research, Inc.
  3. George Deltas, 2003. "The Small-Sample Bias of the Gini Coefficient: Results and Implications for Empirical Research," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 226-234, February.
  4. Cave, J. & Salant, S., 1992. "Cartel Quotas Under Majority Rule," Papers, Michigan - Center for Research on Economic & Social Theory 92-04, Michigan - Center for Research on Economic & Social Theory.
  5. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, Econometric Society, vol. 59(1), pages 1-23, January.
  6. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 63, pages 309.
  7. Pedro L. MarÌn & Richard Sicotte, 2003. "Exclusive Contracts And Market Power: Evidence From Ocean Shipping," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 193-214, 06.
  8. Caplin, Andrew S & Nalebuff, Barry J, 1988. "On 64%-Majority Rule," Econometrica, Econometric Society, Econometric Society, vol. 56(4), pages 787-814, July.
  9. Schmalensee, Richard, 1987. "Competitive advantage and collusive optima," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 351-367.
  10. Cramton, Peter C & Palfrey, Thomas R, 1990. "Cartel Enforcement with Uncertainty about Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 17-47, February.
  11. Harrington, Joseph E, Jr, 1991. "The Determination of Price and Output Quotas in a Heterogeneous Cartel," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 767-92, November.
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