Cooperation for Monopolization? An Empirical Analysis of Cartelization

Ananth Madhavan, Robert T Masson and William H Lesser

The Review of Economics and Statistics, 1994, vol. 76, issue 1, 161-75

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.

Date: 1994
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