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The JEC Revisited: Did Debt Undermine Stability?

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  • Peter Grossman
  • Kathy Gjerde

Abstract

The Joint Executive Committee (JEC), one of the most studied cartels in all of economics, was at best partially successful at maintaining collusion. The railroad cartel faced frequent breakdowns and re-contracting efforts. This paper considers the effects that large capital debt may have had on the members of the JEC. The JEC is compared to the express cartel of the period in which all firms were creditors. The latter had no breakdowns during the same period. It is shown through a small modification in an oligopolistic supergame that debt-burdened firms are less likely to maintain a stable cartel agreement than a cartel of creditors, a result that is consistent with the experience of these two cartels. Copyright International Atlantic Economic Society 2009

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  • Peter Grossman & Kathy Gjerde, 2009. "The JEC Revisited: Did Debt Undermine Stability?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 37(1), pages 65-71, March.
    • Handle: RePEc:kap:atlecj:v:37:y:2009:i:1:p:65-71
    DOI: 10.1007/s11293-008-9160-8
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    References listed on IDEAS

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    1. James W. Friedman, 1973. "A Non-cooperative Equilibrium for Supergames: A Correction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 435-435.
    2. Glenn Ellison, 1994. "Theories of Cartel Stability and the Joint Executive Committee," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 37-57, Spring.
    3. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414, Elsevier.
    4. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    5. Robert H. Porter, 1983. "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 301-314, Autumn.
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    JEL classification:

    • N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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