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Price Wars and the Stability of Collusion: A Study of the Pre‐World War I Bromine Industry [Note 1. The author acknowledges helpful comments from two anonymous referees, ...]
Author(s) -
Levenstein Margaret C.
Publication year - 1997
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00039
Subject(s) - collusion , economic rent , bromine , economics , cartel , imperfect , price formation , microeconomics , monetary economics , chemistry , linguistics , philosophy , organic chemistry
Between 1885 and 1914 US bromine producers colluded to raise prices and profits. This collusion was disrupted by price wars. Bromine price wars are compared with Green/Porter and Abreu/Pearce/Stacchetti models. Some price wars resulted from the imperfect monitoring problems which motivate these models. Several empirical implications of the APS model are borne out, but the bromine industry's price wars were generally milder than contemplated by APS. More severe price wars were part of a bargaining process, in which firms tried to force renegotiation to a new collusive equilibrium with a different distribution of rents.