Voting in Cartels: Theory and Evidence from the Shipping Industry

Cesar Martinelli and Richard Sicotte ()
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Richard Sicotte: Economics Department, University of Vermont

No 404, Working Papers from Centro de Investigacion Economica, ITAM

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.

Pages: 19 pages
Date: 2004-02, Revised 2004-03-05
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http://ftp.itam.mx/pub/academico/inves/martinelli/04-04.pdf First version, 2004-02-28 (application/pdf)

Related works:
Working Paper: Voting in Cartels: Theory and Evidence from the Shipping Industry (2004)
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