Cartel stability and the Joint Executive Committee, 1880-1886

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Title: Cartel stability and the Joint Executive Committee, 1880-1886
Authors: Lobato, Ignacio N.
Walsh, Patrick P.
Permanent link: http://hdl.handle.net/10197/1000
Date: 1994
Abstract: In this paper we analyse a railroad cartel run by the Joint Executive Committee (JEC) in the United States in the nineteenth century. The JEC was a cartel whose members anticipated a periodic fall in demand due to competition from the Great Lakes. In a simplified situation we model the optimal price setting behaviour of a cartel that fully anticipates a large and prolonged (infinite) switch to a lower level of demand. We show that joint profit maximisation is not sustainable as a perfect equilibrium before the switch (in the lakes closed regimes). We also show that an optimal cartel may have had to revise its official rate downwards in the periods leading up to the infinite switch in demand. Empirically we show that the number of weeks leading up to the opening of the lakes is a significant factor in explaining downward price revisions by the JEC in lakes closed regimes. Unanticipated demand shocks and entry of new firms are also found to be significant factors. The factors that determine price revisions in the lakes open regimes cannot be analysed due to insufficient data points and control variables.
Type of material: Working Paper
Publisher: Trinity College Dublin. Department of Economics
Copyright (published version): Trinity College Dublin, Department of Economics 1994
Subject LCSH: Cartels--United States--History
Industrial Organization--United States
Railroads--United States--History
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Politics and International Relations Research Collection
Geary Institute Research Collection

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