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On the workings of a cartel : evidence from the Norwegian cement industry

Steen, Frode; Röller, Lars-Hendrik
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http://hdl.handle.net/11250/162798
Issue date
2003-06
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  • Discussion papers (SAM) [506]
Abstract
Using the institutional set-up of the Norwegian cement industry, in particular

its sharing rule, we are able to identify the workings of a cartel in some detail. We

focus on the two problems that any cartel faces: deciding on domestic quantitiy

as well as on the distribution of rents. Given data on prices, production, and

exports, we are able to identify marginal costs as well as the effectiveness of the

cartel. We find that the cement cartel has been ineffective in the sense that the

sharing rule induces ”overproduction” and exporting below marginal costs. In this

sense it is consumers, not firms, that benefit from the sharing rule. We find that

the ineffectiveness of the cartel is becoming so large that domestic welfare of a

merger to monopoly would in fact be positive at around 1968, which is exactly

when the merger actually took place! However, we also show that competition

would have resulted in even higher welfare gains over the entire sample.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2003:25

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