American Economic Review: Vol. 96 No. 1 (March 2006)
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On the Workings of a Cartel: Evidence from the Norwegian Cement Industry
Röller, Lars-Hendrik, and Frode Steen. 2006. "On the Workings of a Cartel: Evidence from the Norwegian Cement Industry." American Economic Review, 96(1): 321-338.
Using data on prices, production, and exports, we are able to identify marginal costs as well as the effectiveness of the Norwegian cement industry cartel. We find that our marginal cost estimates are very much in line with the detailed cost accounting data. We show that the cement cartel has been ineffective because the sharing rule induces "overproduction" and exporting below marginal costs. It is consumers -- not firms -- who benefit from the sharing rule. The ineffectiveness of the cartel was becoming so large that domestic welfare of a merger to monopoly would be positive around 1968, which is when the merger actually took place! We also show that competition would have resulted in even higher welfare gains over the entire sample.
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