When Are Cartels Stable Contracts?
Why do some industry cartels survive for decades while others are quickly undermined by price wars and entry? Variation in cartels' longevity can be explained by differences in their costs of self-enforcement and service value to members. Analyzing legal cartel contracts formed under the Webb-Pomerene Export Trade Act, I find that longer-lived cartels tended to export to small buyers, to have wide industry coverage, to operate in periods of stable prices and growing demand and to sell under side agreements with foreign competitors. Contracts in which the cartel centralized its control through a common sales agency tended to be more stable. However, cartels usually grew less stable with age and when there was a recent and long history of cartelization in the industry. Finally, cartels whose primary rationale was to fix price tended to be particularly unstable because these contracts invited fringe competition and entry. Copyright 1996 by the University of Chicago.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Douglas W. Allen & Dean Lueck, 1993. "Transaction Costs and the Design of Cropshare Contracts," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 78-100, Spring.
- Lambson, Val Eugene, 1984. "Self-enforcing collusion in large dynamic markets," Journal of Economic Theory, Elsevier, vol. 34(2), pages 282-291, December.
- Larson, David A, 1970. "An Economic Analysis of the Webb-Pomerene Act," Journal of Law and Economics, University of Chicago Press, vol. 13(2), pages 461-500, October.
- Asch, Peter & Seneca, J J, 1976. "Is Collusion Profitable?," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 1-12, February.
- Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 13-38, April.
- Fraas, Arthur G & Greer, Douglas F, 1977. "Market Structure and Price Collusion: An Empirical Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 26(1), pages 21-44, September.
- B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
- Green, Edward J., 1980. "Noncooperative price taking in large dynamic markets," Journal of Economic Theory, Elsevier, vol. 22(2), pages 155-182, April.
- Asch, Peter & Seneca, Joseph J, 1975. "Characteristics of Collusive Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 23(3), pages 223-237, March.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:v:39:y:1996:i:1:p:241-83. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.