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Market Power and Cartel Formation: Theory and an Empirical Test

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  • Filson, Darren
  • Keen, Edward
  • Fruits, Eric
  • Borcherding, Thomas

Abstract

Antitrust enforcement makes it difficult to test theories of cartel formation because most attempts to form cartels are blocked or kept secret. However, federal laws allow U.S. produce growers to operate marketing cartels through devices called "marketing orders." These cartels use quantity controls and quality standards to raise prices of fresh produce. Some growers have adopted marketing orders, and others have not. This paper develops and tests a positive theory of the adoption of marketing orders. The theory suggests that growers in a region are more likely to adopt a marketing order if the demand for fresh produce is inelastic, the growers' market share in the fresh market is large, there are barriers to entry and expansion, the fraction of the output the growers ship to the fresh market is not too large or too small, growers are homogeneous, and large cooperatives exist. Probit analyses support these hypotheses. Copyright 2001 by the University of Chicago.

Suggested Citation

  • Filson, Darren & Keen, Edward & Fruits, Eric & Borcherding, Thomas, 2001. "Market Power and Cartel Formation: Theory and an Empirical Test," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 465-480, October.
    • Handle: RePEc:ucp:jlawec:v:44:y:2001:i:2:p:465-80
    DOI: 10.1086/322817
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    1. John M. Crespi & Adriana Chacón-Cascante, 2004. "Do U.S. marketing orders have much market power? An examination of the Almond Board of California," Agribusiness, John Wiley & Sons, Ltd., vol. 20(1), pages 1-15.
    2. Matt Lindsay & Robert Deacon & Darren Filson, 2014. "Tom Borcherding," Public Choice, Springer, vol. 160(1), pages 1-6, July.
    3. Tanja Artiga González & Markus Schmid & David Yermack, 2019. "Does Price Fixing Benefit Corporate Managers?," Management Science, INFORMS, vol. 65(10), pages 4813-4840, October.
    4. Balagtas, Joseph Valdes & Masters, William J. & Zimmer, Timothy, 2005. "Cartel Pricing with Entry: the Experience of the Far West Marketing Order for Spearmint," 2005 Annual meeting, July 24-27, Providence, RI 19328, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Bernd-O. Heine & Matthias Meyer & Oliver Strangfeld, 2005. "Stylised Facts and the Contribution of Simulation to the Economic Analysis of Budgeting," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 8(4), pages 1-4.
    6. Amore, Mario Daniele & Marzano, Riccardo, 2019. "Family Ownership and Antitrust Violations," CEPR Discussion Papers 14018, C.E.P.R. Discussion Papers.
    7. Swoboda, Sandra Maria, 2017. "Einfluss ausgewählter Determinanten auf die Kartellbildung und -stabilität: Eine Literaturstudie," Arbeitspapiere 176, University of Münster, Institute for Cooperatives.
    8. Plakias, Zoe T. & Goodhue, Rachael E. & Williams, Jeffrey, 2015. "Producer Attitudes Toward Mandatory Agricultural Marketing Organizations: Evidence from the California Fresh Peach and Nectarine Industry," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205739, Agricultural and Applied Economics Association.
    9. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    10. Margaret C. Levenstein & Valerie Y. Suslow, 2016. "Price Fixing Hits Home: An Empirical Study of US Price-Fixing Conspiracies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 48(4), pages 361-379, June.

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