Market Power and Cartel Formation: Theory and an Empirical Test

Posted: 23 Sep 2001

See all articles by Darren Filson

Darren Filson

Claremont McKenna College - Robert Day School of Economics and Finance

Edward Keen

KPMG

Eric Fruits

Law and Economics Consulting Group (LECG), Inc.

Thomas Borcherding

Claremont Colleges, Claremont Graduate University - Department of Economics

Abstract

Antitrust enforcement makes it difficult to test theories of cartel formation because most attempts to form cartels are blocked or kept secret. However, federal laws allow U.S. produce growers to operate marketing cartels through devices called marketing orders. These cartels use quantity controls and quality standards to raise prices on fresh produce. Some growers have adopted marketing orders and others have not. This paper develops and tests a positive theory of the adoption of marketing orders. The theory suggests that growers in a region are more likely to adopt a marketing order if the demand for fresh produce is inelastic, the growers' market share in the fresh market is large, there are barriers to entry and expansion, the fraction of the output the growers ship to the fresh market is not too large or too small, growers are homogeneous, and large cooperatives exist. Probit analyses support these hypotheses.

Suggested Citation

Filson, Darren and Keen, Edward and Fruits, Eric and Borcherding, Thomas, Market Power and Cartel Formation: Theory and an Empirical Test. Journal of Law & Economics, Vol. 44, No. 2, Pt. 1, October 2001, Available at SSRN: https://ssrn.com/abstract=280100

Darren Filson (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

HOME PAGE: http://www.cmc.edu/academic/faculty/profile/darren-filson

Edward Keen

KPMG

8 Salisbury Square
Global Transfer Pricing
London EC4Y 8BB
United Kingdom

Eric Fruits

Law and Economics Consulting Group (LECG), Inc.

333 South Grand Avenue
Suite 3750
Los Angeles, CA 90071
United States

Thomas Borcherding

Claremont Colleges, Claremont Graduate University - Department of Economics ( email )

Claremont, CA 91711
United States

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