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Cooperation in Prices and Capacities: Trade Associations in Brewing after Repeal

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  • McGahan, A M

Abstract

This study's main contribution is examination of the excess capacity held by brewers during a period in which they tacitly cooperated on price. The analysis covers the industry in the United States between repeal of Prohibition in 1933 and wartime rationing of raw material in 1942. From April 1933 to May 1935, "destructive price-cutting" among brewers was illegal under the National Industrial Recovery Act. Subsequent rivalry among trade associations facilitated the development of tacitly cooperative pricing arrangements. The trade associations appear to have adopted a different agenda as cooperation spread among all brewers. Instead of just facilitating cooperation on price, the associations may have facilitated cooperation in the distribution of responsibility for enforcement. Members apparently distributed responsibility by coordinating the allocation of excess capacity. These and other results are interpreted to suggest additional avenues for research on the distribution of responsibility for punishments in a cooperative regime. Copyright 1995 by the University of Chicago.

Suggested Citation

  • McGahan, A M, 1995. "Cooperation in Prices and Capacities: Trade Associations in Brewing after Repeal," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 521-559, October.
  • Handle: RePEc:ucp:jlawec:v:38:y:1995:i:2:p:521-59
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    File URL: http://dx.doi.org/10.1086/467341
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    2. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    3. McGahan, A. M., 1991. "The Emergence of the National Brewing Oligopoly: Competition in the American Market, 1933–1958," Business History Review, Cambridge University Press, vol. 65(02), pages 229-284, June.
    4. Baker, Jonathan B, 1989. "Identifying Cartel Policing under Uncertainty: The U.S. Steel Industry, 1933-1939," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 47-76, October.
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    6. William A. Brock & José A. Scheinkman, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 371-382.
    7. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    8. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
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    10. Porter, Robert H, 1985. "On the Incidence and Duration of Price Wars," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 415-426, June.
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    Cited by:

    1. Nelson, Jon P., 2001. "Advertising Bans, Monopoly, and Alcohol Demand: Testing for Substitution Effects Using Panel Data," Working Papers 1-01-1, Pennsylvania State University, Department of Economics.
    2. Jonathan B. Baker, 2003. "The Case for Antitrust Enforcement," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 27-50, Fall.
    3. Margaret C. Levenstein & Valerie Y. Suslow, 2002. "What Determines Cartel Success?," UMASS Amherst Economics Working Papers 2002-01, University of Massachusetts Amherst, Department of Economics.
    4. Hüschelrath, Kai, 2008. "Is it Worth all the Trouble? The Costs and Benefits of Antitrust Enforcement," ZEW Discussion Papers 08-107, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Jon Nelson, 2003. "Advertising Bans, Monopoly, and Alcohol Demand: Testing for Substitution Effects using State Panel Data," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 1-25, February.
    6. Victor Manuel Bennett & Lamar Pierce & Jason A. Snyder & Michael W. Toffel, 2012. "Competition and Illicit Quality," Harvard Business School Working Papers 12-071, Harvard Business School, revised May 2012.

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