Preconditions for Private Restraints on Market Access and International Cartels

Abstract

With the decline of government-imposed trade barriers policymakers have given greater attention to the international distortions created by the practices of private firms, including cartels. We critically evaluate the techniques used in the economic literature to estimate the effects of these private practices and find them wanting on several grounds. In contrast, many of the necessary conditions for these practices to distort resource allocation are observable, which leads us to propose filters that policymakers can employ when evaluating accusations of impaired access to foreign markets or cartelization. Before undertaking an evaluation of the effects of a foreign private practice, policymakers would check whether the necessary conditions are in place for that practice to successfully distort market outcomes. Failure to pass this initial filter would lead to the accusation being dismissed. We discuss how this filter can be operationalized, drawing extensively upon published sources and empirical studies.