Vertical Restraints in the Bromine Cartel: The Role of Distributors in Facilitating Collusion

Abstract

From 1885 to 1902 manufacturers and distributors in the American bromine industry cooperated to increase prices and profits. Like many sectors of the American economy at the time, the bromine industry was made up a large number of small manufacturers and a small number of national distributors. The manufacturers agreed to pool their output and sell only to two distributors. The distributors accumulated excess inventories rather than let the market price fall, but then used those inventories as a threat to deter cheating and new entry. Industry participants designed contracts to balance fluctuations in the costs and benefits from cheating. These contracts succeeded in stabilizing collusion until the entry of new, vertically integrated, mass production firm led to its demise.