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On the Workings of a Cartel: Evidence from the Norwegian Cement Industry

  • Lars-Hendrik R�ller
  • Frode Steen

Using data on prices, production, and exports, we are able to identify marginal costs as well as the effectiveness of the Norwegian cement industry cartel. We find that our marginal cost estimates are very much in line with the detailed cost accounting data. We show that the cement cartel has been ineffective because the sharing rule induces "overproduction" and exporting below marginal costs. It is consumers -- not firms -- who benefit from the sharing rule. The ineffectiveness of the cartel was becoming so large that domestic welfare of a merger to monopoly would be positive around 1968, which is when the merger actually took place! We also show that competition would have resulted in even higher welfare gains over the entire sample.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282806776157713
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File URL: http://www.aeaweb.org/aer/data/mar06_data_20030677.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 1 (March)
Pages: 321-338

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:1:p:321-338
Note: DOI: 10.1257/000282806776157713
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  1. Mukesh Eswaran, 1997. "Cartel Unity over the Business Cycle," Canadian Journal of Economics, Canadian Economics Association, vol. 30(3), pages 644-72, August.
  2. Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-41, August.
  3. Aiginger, Karl & Pfaffermayr, Michael, 1997. "Looking at the Cost Side of "Monopoly."," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 245-67, September.
  4. James A. Brander & Richard Harris, 1983. "Anticipated Collusion and Excess Capacity," Working Papers 530, Queen's University, Department of Economics.
  5. Benoit, Jean-Pierre & Krishna, Vijay, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 23-35, January.
  6. Mats Bergman, 1997. "Antitrust, Marketing Cooperatives, and Market Power," European Journal of Law and Economics, Springer, vol. 4(1), pages 73-92, January.
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