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Cooperation for Monopolization? An Empirical Analysis of Cartelization

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  • Madhavan, Ananth N
  • Masson, Robert T
  • Lesser, William H

Abstract

This paper examines the ability of a large numbers cartel to raise price-cost margins. The cartel in question is a dairy cooperative, Associated Milk Producers, Inc. (AMPI), with more than 30,000 members. We develop a model of spatial limit pricing that we test using the method of Seemingly Unrelated Regressions, adjusting for serial correlation. Our results suggest that the cartel successfully obtained and used market power and that its power was proportional to its market share. In contrast, after an antitrust consent decree, margins fell significantly and were no longer related to market shares. These results are robust under both pooled and market fixed effects analysis. Copyright 1994 by MIT Press.

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  • Madhavan, Ananth N & Masson, Robert T & Lesser, William H, 1994. "Cooperation for Monopolization? An Empirical Analysis of Cartelization," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 161-175, February.
    • Handle: RePEc:tpr:restat:v:76:y:1994:i:1:p:161-75
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    Cited by:

    1. Kachel, Yael & Finkelsthain, Israel, 2009. "Antitrust Legislation and Cooperation in Fish Marketing," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 37(2), pages 1-23.
    2. Jeong, Kap-Young & Masson, Robert T., 2003. "A new methodology linking concentration dynamics to current and steady-state profits:Examining Korean industrial policy during take-off," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1489-1526, December.
    3. Kellie Curry Raper & H. Alan Love & C. Richard Shumway, 2000. "Determining market power exertion between buyers and sellers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(3), pages 225-252.
    4. Bolotova, Yuliya V., 2009. "Cartel overcharges: An empirical analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 321-341, May.
    5. Kachel, Yael & Finkelshtain, Israel, 2010. "A Comparative Analysis of Antitrust Regulations in the Agricultural Sector in Israel, the US and the EU," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 38(1), pages 1-35.
    6. Peter L Ormosi, 2011. "A tip of the iceberg? The probability of catching cartels," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2011-06, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    7. Wolf, Christopher A. & Hamm, Larry G., 1998. "The Role Of Cooperatives In Milk Marketing," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20899, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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