Cartels Destroy Productivity: Evidence from the New Deal Sugar Manufacturing Cartel, 1934-74

Abstract

The idea that cartels might reduce industry productivity by misallocating production from high to low productivity producers is as old as Adam. However, the study of the economic consequences of cartels has almost exclusively focused on the losses from higher prices (i.e., Harberger triangles). Yet, as the old idea suggests, we show that the rules for quotas and side payments in the New Deal sugar cartel led to significant misallocation of production. The resulting productivity declines essentially destroyed the entire cartel profit. The magnitude of the deadweight losses (relative to value added) was large: we estimate a lower bound for the losses equal to 25 percent and 42 percent in the beet and cane industries, respecttively.

How Large Are the Gains from Economic Integration? Theory and Evidence from U.S. Agriculture, 1880-1997

“…In practice, such distortions may reflect location-specific quotas on certain agricultural commodities, as described by Bridgman et al (2015), or commodity-specific exemptions from transportation regulations, as discussed in Black (1955). 19 Under this alternative interpretation of price gaps, the gains from economic integration can be measured as:…”

Market Power, Production (Mis)Allocation and OPEC

“…An important exceptions is the work of Borenstein et al (2002) on California electricity markets, which is closely related to the approach taken in this paper. There is also a small empirical literature that documents the effects of cartels on productivity, such as Bridgman et al (2015) on the government-sponsored beet sugar cartel. 3 Also notable is the literature on industry performance and reallocation -pioneered by Olley and Pakes (1996) -in which industry-wide performance is connected to the allocation of producer-level market shares.…”

Distributional Effects of Competition: A Simulation Approach

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