Industry Cartel Research Articles

The French Nitrogen Industry during the Interwar Period: The Ambiguous Relationship between the State and Manufacturers

Abstract At the end of the First World War, the French government seized the opportunity to acquire the chemical processes of the German firm BASF, including the Haber-Bosch process. This patent made it possible to synthesize nitrogen from the air and thus produce nitrogen fertilizers in large quantities. French industrialists, however, refused to acquire these patents, and to make up for this lack of private sector involvement, the French Parliament decided in 1924 to create a national plant (ONIA), which became the first state-owned plant to be exposed to market competition. The intention was for the ONIA to supply the army with nitric acid in times of war, and, in peacetime, to sell fertilizers at the lowest possible prices in order to curb the monopoly of the private industry cartel. The purpose of this article is therefore to study the establishment and organisation of the French market for nitrogen fertilisers during the inter-war period by raising a number of questions about the ambiguous and complex relations between the state and private industry in this strategic sector. Why was the state policy initiated with the ONIA not successful at first? From 1927-1928, once the ONIA was operational, why and how did the public and private players jointly organise the marketing of fertilisers even though their interests were partially divergent? From the economic crisis of the 1930s onwards, how did the regulation of this mixed market evolve and how were public/private tensions overcome? In the French case, why did French producers leave the international cartel very early on in favour of state protectionism? And finally, to what extent can it be said that this “managed economy” framework succeeded in satisfying all the players in the French nitrogen industry?

Antitrust & Corruption: Overruling Noerr

We live in a time when concerns about influence over the American political process by powerful private interests have reached an apogee, both on the left and the right. Among the laws originally intended to fight excessive private influence over republican institutions were the antitrust laws, whose sponsors were concerned not just with monopoly, but also its influence over legislatures and politicians. While no one would claim that the antitrust laws were meant to be comprehensive anti-corruption laws, there can be little question that they were passed with concerns about the political influence of powerful firms and industry cartels. Since the 1960s, however, antitrust law’s scrutiny of corrupt and deceptive political practices has been sharply limited by the Noerr-Pennington doctrine, which provides immunity to antitrust liability for conduct that can be described as political or legal advocacy. The doctrine was created through apparent First Amendment avoidance, based on the premise that the Sherman Act could not have been intended to interfere with a right to petition government. The Noerr decision, dating from 1961, was strained when it was decided and has not aged well. As an interpretation of the antitrust laws, it ignored Congressional concern with political mischief undertaken by conspiracy or monopoly. Its legitimacy has always rested on avoidance of the First Amendment, and while Noerr itself may have legitimately reflected such avoidance, the subsequent growth of a Noerr immunity has blown past any First Amendment-driven defense of its existence. For that reason, others have suggested a reformulation of the doctrine. The better answer is that, lacking constitutional or statutory foundation, Noerr should be overruled. The First Amendment guarantees freedom of speech, assembly, and “to petition the government for a redress of grievances.” It therefore protects efforts to influence political debate as well as legitimate petitioning in the legislative, judicial or administrative processes. The First Amendment does not, however create a right to bribe government officials, deceive agencies, file false statements, or abuse government process through repeated filings designed only to injure a competitor. Nonetheless, each of these activities has, in some courts at least, been granted immunity under the overgrown Noerr immunity. It is an extra-constitutional outlier ripe for reexamination. Overruling Noerr would not make political petitioning illegal. It would, instead, require defendants to rely on the First Amendment when seeking to defend what would otherwise be conduct that is illegal under the antitrust laws. Doctrinally, this is to force courts to address whether conduct in question is actually an antitrust violation, and if, so whether it is protected by the First Amendment or not, drawing on an established jurisprudence for some of the problems presented in the Noerr context.

The Impact of Patents and R&D Cooperation on R&D Investments in a Differentiated Goods Industry

Abstract In this paper, we consider the impact of patents and R&D cooperation on R&D investments in the oligopolistic industry with differentiated products. Four types of firms’ conduct are investigated: R&D competition without patents, R&D competition with patent protection, R&D cooperation, and the full industry cooperation. The obtained results suggest that patents do not necessarily promote R&D investments due to the existence of so called tournament effects. R&D cooperation stimulates R&D investments, but R&D cooperation provides sufficient incentives to create a full industry cartel. Such a cartel works to the detriment of consumers. Our analysis led us to the conclusion that for a relatively low level of R&D spillovers, the policy-makers should promote R&D competition without patent protection among oligopolistic firms. For a relatively high level of R&D spillovers, R&D cooperation enhances innovation, but the regulator should monitor the market for probable collusion.

R&D spillovers and cartelization of industries with differentiated products

The objective of this article is to investigate the impact of research and development (R&D) spillovers on cartelization of industries characterized by differentiated products. For simplicity, we focus on the duopoly market in which firms compete according to the Stackelberg leadership model. Numerical analysis shows that as long as products offered on the market are at least slightly differentiated, it is beneficial for firms to cooperate at the R&D stage, and form a cartel at the final product market. The threat of cartelizing industry is not present only under fully homogenous goods’ competition. But, since the vast majority of product markets trade in differentiated goods, tightening cooperation in R&D generates a serious threat of industry cartelization. Thus, significant antitrust issues emerge.

Network similarity and collusion

This study focuses on how collusive construction industry cartels structure their bidding patterns to increase their market shares, while preserving an illusion of competition. Using past research on the economics and social organization of bid-rigging and collusion, we examine a key issue related to similarities within bidding structures that are likely tainted by cartels. The study is empirically based on public procurement data to recreate the structure of interactions between construction industry firms in the province of Quebec (Canada) over a 12-year period (2002–2013). Cross-level multivariate analyses demonstrate that our indicator of similarities in bidding patterns, the Jaccard coefficient, is a positive factor of market shares, but particularly in cities that are targeted for collusive practices. We also emphasize the need to develop a monitoring system that allows researchers and analysts to track collusion patterns in various ways so as to prevent an increase of more sophisticated schemes and cartels.

Collusive Agreements in Vertically Differentiated Markets

This paper introduces a number of game-theoretic tools to model collusive agreements among firms in vertically differentiated markets. I firstly review some classical literature on collusion between two firms producing goods of exogenous different qualities. I then extend the analysis to a n-firm vertically differentiated market to study the incentive to form either a whole market alliance or partial alliances made of subsets of consecutive firms in order to collude in prices. Within this framework I explore the price behaviour of groups of colluding firms and their incentive to either pruning or proliferating their products. It is shown that a selective pruning within the cartel always occurs. Moreover, by associating a partition function game to the n-firm vertically differentiated market, it can be shown that a sufficient condition for the cooperative (or coalitional) stability of the whole industry cartel is the equidistance of firms’ products along the quality spectrum. Without this property, and in presence of large quality differences, collusive agreements easily lose their stability. In addition, introducing a standard infinitely repeated-game approach, I show that an increase in the number of firms in the market may have contradictory effects on the incentive of firms to collude: it can make collusion easier for bottom and intermediate firms and harder for the top quality firm. Finally, by means of a three-firm example, I consider the case in which alliances can set endogenously qualities, prices and number of variants on sale. I show that, in every formed coalition, (i) market pruning dominates product proliferation and (ii) partial cartelisation always arises in equilibrium, with the bottom quality firm always belonging to the alliance.

Wybrane zagadnienia współpracy badawczo-rozwojowej przedsiębiorstw w ujęciu ekonomii gałęziowej

Celem niniejszej pracy jest analiza wybranych zagadnien wspolpracy badawczo-rozwojowej przedsiebiorstw dyskutowanych w ramach ekonomii galeziowej. Rozpatrywanatu problematyka dotyczy czterech, wzajemnie powiązanych zagadnien, tj. stabilności wspolpracy badawczo-rozwojowej przedsiebiorstw, organizacji tej kooperacji, asymetriipomiedzy uczestnikami wspolpracy oraz jej wplywu na prawdopodobienstwo powstania kartelu na rynku produktu. Z analizy cytowanych prac teoretycznych wynika, ze warunkiem koniecznym osiągniecia korzyści ze wspolpracy badawczo-rozwojowej jest skuteczne rozwiązanie problemu „pasazera na gape” w procesie dzielenia sie wiedzą przez wspolpracujące przedsiebiorstwa i tym samym utrzymanie stabilnej kooperacji. Przeszkodą dla powstania stabilnej wspolpracy mogą byc jednak zbyt niskie bądź zbyt wysokie wartości asymetrii pomiedzy przedsiebiorstwami. Natomiast skuteczna stabilizacja wspolpracy badawczo-rozwojowej moze zostac osiągnieta dzieki m.in. licencjonowaniu know-how, intensyfikacji wymiany wiedzy w ramach wspolpracy oraz roznym formom organizacyjnym kooperacji (partnerstwa badawcze, kartele badawczo-rozwojowe). Z punktu widzenia dobrobytu spolecznego (efektywności rynku) istotny jest jednak fakt, ze zacieśnianie wspolpracy na etapie badawczo-rozwojowym zwieksza bodźce przedsiebiorstw do utworzenia kartelu takze na rynku produktu finalnego.

The Judicial Review of the European Union Industrial Cartels

The Judicial Review of the European Union Industrial Cartels

Price Cutting and Business Stealing in Imperfect Cartels

Although economists have made substantial progress toward formulating theories of collusion in industrial cartels that account for a variety of fact patterns, important puzzles remain. Standard models of repeated interaction formalize the observation that cartels keep participants in line through the threat of punishment, but they fail to explain two important factual observations: first, apparently deliberate cheating actually occurs; second, it frequently goes unpunished even when it is detected. We propose a theory of equilibrium price cutting and business stealing in cartels to bridge this gap between theory and observation. (JEL D43, L12, L13)

Research Joint Ventures and Cartelization of Industries

The aim of this paper is to investigate the impact of the firms’ behavior in the product market on their decisions at the R&D stage. We compare the consequences of the Stackelberg-type competition of two firms for the R&D investments with the situation of a cartelized industry under the assumption of quadratic cost functions. Numerical analysis shows that the lowest values of R&D efforts occur when the companies form a research joint venture. Moreover, greater R&D expenditures can be observed when a research joint venture is formed in a cartelized industry rather than under a Stackelberg-type duopoly.

Tax Evasion and Tacit Collusion

This article analyzes the interaction between tax evasion and tacit collusion. We show that the possibility of evading taxes generally influences the incentives to form a cartel. We establish that whether tax evasion increases or decreases the set of circumstances allowing stable collusion depends on (1) the relation between the benefits of tax evasion and legal after-tax profits and (2) effective enforcement of antitrust laws. In considering variations in tax enforcement and antitrust enforcement, we find that stricter tax enforcement may actually increase the level of tax evasion, as it may promote the cartelization of industries. In contrast, stricter antitrust enforcement lowers incentives for cartelization, thereby possibly reducing tax evasion at the same time.

Hawaii Pineapple: The Rise and Fall of an Industry

The date pineapple (Ananas comosus var. comosus) was introduced to Hawaii is not known, but its presence was first recorded in 1813. When American missionaries first arrived in Hawaii in 1820, pineapple was found growing wild and in gardens and small plots. The pineapple canning industry began in Baltimore in the mid-1860s and used fruit imported from the Caribbean. The export-based Hawaii pineapple industry was developed by an entrepreneurial group of California migrants who arrived in Hawaii in 1898 and the well-connected James D. Dole who arrived in 1899. The first profitable lot of canned pineapples was produced by Dole’s Hawaiian Pineapple Company in 1903 and the industry grew rapidly from there. Difficulties encountered in production and processing as the industry grew included low yields resulting from severe iron chlorosis and the use of low plant populations, mealybug wilt that devastated whole fields, inadequate machinery that limited cannery capacity, and lack of or poorly developed markets for the industry’s canned fruit. The major production problems were solved by public- and industry-funded research and innovation in the field and in the cannery. An industry association and industry-funded cooperative marketing efforts, initially led by James Dole, helped to expand the market for canned pineapple. Industry innovations were many and included: selection of ‘Smooth Cayenne’ pineapple as the most productive cultivar with the best quality fruit for canning; identification of the cause of manganese-induced iron chlorosis and its control with biweekly iron sulphate sprays; the use of mulch paper and the mechanization of its application, which increased yields by more than 20 t·ha−1; and the invention of the Ginaca peeler–corer machine, which greatly sped cannery throughput. Nematodes were also a serious problem for the industry, which resulted in the discovery and development of nematicides in the 1930s. As a result, by 1930 Hawaii led the world in the production of canned pineapple and had the world’s largest canneries. Production and sale of canned pineapple fell sharply during the world depression that began in 1929. However, the formation of an industry cartel to control output and marketing of canned pineapple, aggressive industry-funded marketing programs, and rapid growth in the volume of canned juice after 1933 restored industry profitability. Although the industry supported the world’s largest pineapple breeding program from 1914 until 1986, no cultivars emerged that replaced ‘Smooth Cayenne’ for canning. The lack of success was attributed in part to the superiority of ‘Smooth Cayenne’ in the field and the cannery, but also to the difficulty in producing defect-free progeny from crosses between highly heterozygous parents that were self-incompatible. Production of canned pineapple peaked in 1957, but the stage was set for the decline of the Hawaii industry when Del Monte, one of Hawaii’s largest canners, established the Philippine Packing Corporation (PPC) in the Philippines in the 1930s. The expansion of the PPC after World War II, followed by the establishment of plantations and canneries by Castle and Cooke’s Dole division in the Philippines in 1964 and in Thailand in 1972, sped the decline. The decline occurred mainly because foreign-based canneries had labor costs approximately one-tenth those in Hawaii. As the Hawaii canneries closed, the industry gradually shifted to the production of fresh pineapples. During that transition, the pineapple breeding program of the Pineapple Research Institute of Hawaii produced the MD-2 pineapple cultivar, now the world’s pre-eminent fresh fruit cultivar. However, the first and major beneficiary of that cultivar was Costa Rica where Del Monte had established a fresh fruit plantation in the late 1970s. Dole Food Co. and Maui Gold Pineapple Co. continue to produce fresh pineapples in Hawaii, mostly for the local market. All of the canneries eventually closed, the last one on Maui in 2007.

Explanations for the Restrained Development of the Dutch Cinema Market in the 1930s

Cinemagoing in the Netherlands during the 1930s appears to have been much less intense than in the English-speaking world. To support this assertion we examine film attendance and diffusion in the Dutch market by recourse to a new large dataset, and contrast it with observations drawn from recent research on the Anglo-Saxon countries (United States, United Kingdom, and Australia). In setting down the economic principles behind the organisation of the film industry that best describe the Anglo-Saxon model, we show how the Dutch experience differed in scale, but not in type. To investigate the reasons for this, we examine the idea that film consumption in the Netherlands was constrained through the operation of informal institutional pressures. In particular, we investigate the influence that the vertical stratification of Dutch society into distinct religious and ideological strands may have had on the filmgoing appetites of the Dutch people. A further investigation looks at the combination of exhibitors and distributors into a single industry cartel and its impact upon prices and cinema building. The paper concludes that a complex mixture of cultural, economic, institutional, and social factors were at play, causing the Dutch people to be an outlier as far as film provision and consumption was concerned.

Explanations for the Restrained Development of the Dutch Cinema Market in the 1930s

Cinemagoing in the Netherlands during the 1930s appears to have been much less intense than in the English-speaking world. To support this assertion we examine film attendance and diffusion in the Dutch market by recourse to a new large dataset, and contrast it with observations drawn from recent research on the Anglo-Saxon countries (United States, United Kingdom, and Australia). In setting down the economic principles behind the organisation of the film industry that best describe the Anglo-Saxon model, we show how the Dutch experience differed in scale, but not in type. To investigate the reasons for this, we examine the idea that film consumption in the Netherlands was constrained through the operation of informal institutional pressures. In particular, we investigate the influence that the vertical stratification of Dutch society into distinct religious and ideological strands may have had on the filmgoing appetites of the Dutch people. A further investigation looks at the combination of exhibitors and distributors into a single industry cartel and its impact upon prices and cinema building. The paper concludes that a complex mixture of cultural, economic, institutional, and social factors were at play, causing the Dutch people to be an outlier as far as film provision and consumption was concerned.

Polish cement industry cartel - preliminary examination of collusion existence

The paper is devoted to a case of a cartel in Polish cement industry. Short description of the industry and characteristics of the cartel with its fundamental illegal practices, market sharing and price fixing have been done. We focused on examination of possibility of detection of a cartel like behavior of players in an industry on a basis of cartel markers’ evaluation, using statistical data we can actually obtain. On a basis of examination of market shares of players and price/supply processes we found distinctive, theoretically motivated patterns characteristic for collusive equilibrium in an industry.

An Anatomy of a Cartel: The National Industrial Recovery Act of 1933 and the Compliance Crisis of 1934

This paper explores the nature and causes of the cartel compliance crisis that befell the National Industrial Recovery Act (NIRA) one year after its passage in 1933. We employ a simple game-theoretic model of the NIRA's cartel enforcement mechanism to show that the compliance crisis can largely be explained by changes in expectations, rather than a change in enforcement policy. Specifically, firms initially overestimated the probability that defection would be met with sanction by the cartel's enabling body, the National Recovery Administration - including a consumer boycott resulting from loss of the patriotic Blue Eagle emblem - and complied with the industry cartel rules. As these expectations were correctly adjusted downward, cartel compliance was lost. We support this hypothesis empirically with industry-level panel data showing how output and wage rates varied according to consumer confidence in the Blue Eagle. The analyis provides insight about cartel performance more generally.

Factors influencing the magnitude of cartel overcharges: An empirical analysis of food‐industry cartels

AbstractUsing overcharge estimates for 395 cartel episodes from the 18th to the 21st century, we evaluate the impact of cartel characteristics on the size of overcharges imposed by cartels across several geographic regions and antitrust law regimes. The results of our study have important policy implications. We find that the average overcharge imposed by cartels in our sample is 19 percent with the median of 16 percent of the selling price. Food industry cartels achieve lower overcharges than domestic cartels. Longer cartel episodes generate higher levels of overcharges. Cartels that were found or pled guilty achieve approximately the same levels of overcharges as legal cartels. [JEL classifications: L1, L2, L4, L6]. © 2007 Wiley Periodicals, Inc. Agribusiness 23: 17–33, 2007.

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

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.

UK Building Societies: ‘Deregulation’ change myths

An academic and official orthodoxy has it that late 1970s and 1980s UK Building Societies ‘deregulation’ (part of wider financial services/banking ‘deregulation’) foreshadowed great change in the nature of the industry and its markets and, so, in the task for management (change from stewardship to strategic management requiring greatly enhanced capability and from regulation protected marketplace, and permitted industry cartel, to open aggressive competition). In this article the orthodoxy is challenged and is exposed as being largely in the nature of myth through statements of building society finance directors in semi-structured interviews and financial data concerning the profitability nexus and markets.

Letters

36Historically Speaking May/June 2004 LETTERS To the Editors: The January 2004 issue of Historically Speaking includes a symposium on liberalism and globalization that astonished me when confronting the biases and omissions ofthe contributors. All three ofthem equate liberalism with free trade, which the Germans supposedly played a key role in undermining. Richard Cobden, who in the 1860s endorsed compulsory universal education and universal manhood suffrage, was, with due respect to the symposiasts, not a 19th-century liberal. He was politically well to the left ofthe English Liberal Party. (Though a self-proclaimed supporter ofuniversal peace, Cobden inconsistently favored intervention by England in the American Civil War against the slaveholding American South.) All the contributors confer an irreversible grace on England and the U.S. as "liberal" societies; Professor Greenfeld also puts the French among the blessed, while joining another contributor, Alfred J. Mierzejewski, in going after the Teutons for their aberrant nationalism and "shallow commitment to the free market." English merchants who allied with sovereigns like Henry VIII were, according to Greenfield, "rational beings" while German industrialists who wanted protectionism are assumed to have been nastier pieces ofwork. Allow me to point out the problems with this framework ofanalysis. If free trade is the litmus test for who is or is not a liberal, how does one characterize the "liberal" U.S., which from the time ofthe Great Emancipator on imposed some ofthe highest tariffs among industrialized nations? Lincoln's alliance with industrial cartels, passionate advocacy of increased tariffs, and invasion of secessionist states can all be cited as evidence of his "belligerent nationalism," a term that seems at least as applicable to Lincoln Republicans as it does to Bismarck and the German National Liberals . Friedrich List, the German economist, who favored aZollverein within Germany and Schutzzölle against foreign competitors, spent much of his life in the U.S., whose system oftariffs he hoped to see brought to his native land. Real 19th-century liberals, about whom I have written extensively , were bourgeois nationalists—as opposed to global democratic internationalists. The Belgians , following their uprising against the Dutch in 1830, gave themselves not only a liberal government but also tariffs to protect their infant industries. Despite their belief in the need for a separation between government and civil society, flesh-and-blood liberals, outside ofEngland, then the world's industrial leader, were generally not fans offree trade. Although Lindsey cites the German work of my friend Ralph Raico, Die Partei derFreiheit, he misinterprets a large chunk ofthat book's argument. Raico does not maintain that the Germans labored under an unusually weak liberal (by which is meant libertarian) tradition. To the contrary: he says Germans had influential representatives of that tradition, including but not limited to Eugen Richter, who landed up being politically defeated. And this, according to Raico, was not a peculiarly German fate, since it happened in the Anglo-American world, with the rise of the welfare state. Another point I find entirely questionable is the treatment ofthe Anglophone world as being immune to the evils of the illiberal German Second Empire. Contemporary Western "democracies " exercise a degree ofcentralized power and intrusive entanglement with social institutions that would have shocked even the Kathedersozialisten , whom our symposiasts denounce as totalitarian nationalists. I do not recall (having read their work) Gustav Schmoller or Adolf Wagner demanding that the German state punish "crimes ofopinion," a practice that European and Canadian democracies now perform routinely. Following the Napoleonic Wars the states of southwestern Germany introduced the most liberal constitutions then in Europe, which remained in force into the 20th century. Ifreligious tolerance is another mark ofa liberal disposition, then Prussia, which practiced such tolerance while England was oppressing Irish Catholics, must have been a relatively liberal country. Moreover, the percentage of GNP taken by the German Empire, which was a federal state, was puny in comparison to what is now paid to our democratic welfare states. Detailed figures on this and other related subjects are available in Wolfgang Reinhardt Geschichte der Staatsgewalt. (For France, one might look at Pierre Rosanvallons llétat en Francede 1 789 à nosjours.) But then Prussian and French bureaucrats in the 19th century, unlike functionaries and...