Cartel Stability and the Joint Executive Committee, 1880-1886

Ignacio Lobato and Patrick Walsh ()

Economics Technical Papers from Trinity College Dublin, Economics Department

Abstract: In this paper we analyse a railroad cartel run by the Joint Executive Committee (JEC) in the United States in the nineteenth century. The JEC was a cartel whose members anticipated a periodic fall in demand due to competition from the Great Lakes. In a simplified situation we model the optimal price setting behaviour of a cartel that fully anticipates a large and prolonged (infinite) switch to a lower level of demand. We show that joint profit maximisation is not sustainable as a perfect equilibrium before the switch (in the lakes closed regimes). We also show that an optimal cartel may have had to revise its official rate downwards in the periods leading up to the infinite switch in demand. Empirically we show that the number of weeks leading up to the opening of the lakes is a significant factor in explaining downward price revisions by the JEC in lakes closed regimes. Unanticipated demand shocks and entry of new firms are also found to be significant factors. The factors that determine price revisions in the lakes open regimes cannot be analysed due to insufficient data points and control variables.

JEL-codes: L10 L92 (search for similar items in EconPapers)
Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduet:941

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