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Voting in Cartels: Theory and Evidence from the Shipping Industry

Author

Listed:
  • Cesar Martinelli

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

  • Richard Sicotte

    (Economics Department, University of Vermont)

Abstract

We examine the choice of voting rules by legal cartels with enforcement capabilities in the presence of uncertainty about demand and costs. We show that cartels face a trade-off between the commitment advantages of more stringent majority requirements and the loss of flexibility resulting from them. Expected heterogeneity in costs or demand conditions leads away from simple majority toward more stringent rules, while larger membership to the cartel leads away from unanimity toward less restrictive rules. Evidence from the shipping conferences of the late 1950s largely supports our model. With few firms, the rule favored by heterogeneous conferences is unanimity. In larger cartels, the favored rule is either 2/3 or 3/4-majority rule.

Suggested Citation

  • Cesar Martinelli & Richard Sicotte, 2004. "Voting in Cartels: Theory and Evidence from the Shipping Industry," Working Papers 0404, Centro de Investigacion Economica, ITAM, revised 05 Mar 2004.
    • Handle: RePEc:cie:wpaper:0404
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    References listed on IDEAS

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