Friday, October 26, 2012
Posted by D. Daniel Sokol
George Deltas, University of Illinois at Urbana-Champaign - Department of Economics and Richard A. Sicotte, University of Vermont - Department of Economics discuss Cartel Organization, Price Discrimination and the Trans-Atlantic Passage, 1899-1911.
ABSTRACT: This paper studies the operation of trans-Atlantic passenger shipping cartels during the period 1899-1911 and its effects on passenger traffic. We systematically document and categorize cartel agreements on the basis of key aspects of internal organization. Then, we exploit the variation in internal organization across markets and over time to investigate whether any specific organizational aspects were more effective in reducing flows from competitive levels. We find some evidence that the assessment of fines for violations of the agreement enhanced collusion, but no evidence that the posting of bonds (to guarantee the fines) or the formation of pooling arrangements had any incremental effect. We also take advantage of the richness of the data on passenger flows to show that collusion had a smaller effect on first and second-class passenger flows relative to third class service. Finally, we provide estimates of consumer substitution across passenger classes due to collusion and show that such substitution was small but non-negligible, especially during periods of normal cartel operation. Our study has broader implications for the theory of collusion, and on how collusion affects the quality, rather than the quantity, of products purchased by consumers.