Cartels and Economic Collusion

Cartels and Economic Collusion

The Persistence of Corporate Conspiracies

Michael A. Utton

Adam Smith warned of the prevalence of corporate conspiracies more than two hundred years ago. Since then, interest in cartels has sometimes intensified (during the Great Depression, for example) and sometimes diminished, but the need for control has always remained on the antitrust agenda. This well-documented book reviews the economic case against corporate collusion, as well as the arguments made for a more permissive attitude.

Chapter 2: The Case for Collaboration

Michael A. Utton

Subjects: economics and finance, competition policy, industrial economics

Extract

I. INTRODUCTION Despite the case set out in the previous chapter for the prohibition of pricefixing cartels, at various points in the last hundred years or so a vigorous defence of such arrangements has been mounted, using the much less pejorative term ‘collaboration’ rather than conspiracy. In the latter part of the 19th century in the US a prolonged and at times heated debate took place around the issue of ‘ruinous competition’. This dire state of affairs would be bound to break out, it was argued, in certain industries at times of slack demand. Firms with high fixed to variable cost ratios would cut prices in an attempt to maintain orders and keep their plant running. Competition would force prices down to unsustainably low levels and many firms (not necessarily the least efficient) would be driven to the wall. An agreement to maintain prices and share out the reduced output would, it was claimed, alleviate the crisis. In the US, at least, the issue was resolved in favour of competition and against collaboration by several early landmark antitrust decisions, although the debate rumbled on until the 1920s.1 In contrast, in the UK, the secular decline of some industries such as cotton textiles and shipbuilding, overlaid by the onset of the world depression, encouraged active government support for ‘distress cartels’ throughout the 1930s. Although it is doubtful whether this policy did much to alleviate the severe adjustment problems that many industries were suffering, it did implant in the minds of many...

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