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

Röller, Lars-Hendrik; Steen, Frode
Working paper
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URI
http://hdl.handle.net/11250/162796
Date
2003
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  • Discussion papers (SAM) [640]
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.

Given data on prices, production, and exports, we are able to identify marginal

costs as well as the effectiveness of the cartel. We compare our marginal cost

estimates, which are derived from an equilibrium condition, to detailed cost accounting

data, and find that our estimate of marginal cost is very much in line

with the data. We then show 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.
Description
Updated August 2004
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2003:25

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