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.

[1]  F. Scherer,et al.  Industrial Market Structure and Economic Performance. , 1971 .

[2]  David Genesove,et al.  Rules, Communication and Collusion: Narrative Evidence from the Sugar Institute Case , 2001 .

[3]  Akihiko Matusui.  Consumer-benefited cartels under strategic capital investment competition , 1989 .

[4]  Garth Saloner,et al.  A Supergame-Theoretic Model of Price Wars during Booms , 1986 .

[5]  Looking at the cost side of `monopoly.' , 2003 .

[6]  J. Brander,et al.  Anticipated Collusion and Excess Capacity , 1983 .

[7]  R. Porter,et al.  NONCOOPERATIVE COLLUSION UNDER IMPERFECT PRICE INFORMATION , 1984 .

[8]  Margaret C. Levenstein.  Price Wars and the Stability of Collusion: A Study of the Pre-World War I Bromine Industry , 1993 .

[9]  Carolyn Pitchik,et al.  Cartels, Profits and Excess Capacity , 1987 .

[10]  Frode Steen,et al.  Semicollusion in the Norwegian cement market , 1999 .

[11]  Mukesh Eswaran.  Cartel Unity over the Business Cycle , 1997 .

[12]  K. Neuhoff,et al.  Border Tax Adjustments: A Feasible way to Support Stringent Emission Trading , 2007 .

[13]  David Genesove,et al.  Testing static oligopoly models: conduct and cost in the sugar industry , 1998 .

[14]  R. Deneckere,et al.  Excess Capacity and Collusion , 1990 .

[15]  R. Porter.  A Study of Cartel Stability: The Joint Executive Committee, 1880-1886 , 1983 .

[16]  R. Pollak,et al.  Demand System Specification and Estimation , 1995 .

[17]  Timothy F. Bresnahan,et al.  Empirical studies of industries with market power , 1989 .

[18]  V. Krishna,et al.  Dynamic Duopoly: Prices and Quantities , 1987 .

[19]  Barbara McCutcheon,et al.  Do Meetings in Smoke‐Filled Rooms Facilitate Collusion? , 1997, Journal of Political Economy.

[20]  Lukasz Grzybowski,et al.  Merger Simulation in Mobile Telephony in Portugal , 2006 .

[21]  R. Sexton.  Cooperatives and the Forces Shaping Agricultural Marketing , 1986 .

[22]  Robert E. Lucas,et al.  Adjustment Costs and the Theory of Supply , 1967, Journal of Political Economy.

[23]  Garth Saloner,et al.  A Supergame-Theoretic Model of Business Cycles and Price Wars During Booms , 1984 .

[24]  M. Bergman.  Antitrust, Marketing Cooperatives, and Market Power , 1997 .