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TRADE ASSOCIATIONS: WHY NOT CARTELS?
Author(s) -
Levine David K.,
Mattozzi Andrea,
Modica Salvatore
Publication year - 2021
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12487
Subject(s) - stylized fact , cartel , incentive , economics , relevance (law) , microeconomics , competition (biology) , international economics , macroeconomics , law , political science , ecology , biology
The relevance of special interests lobbying in modern democracies can hardly be questioned. But if large trade associations can overcome the free riding problem and form effective lobbies, why do they not also threaten market competition by forming equally effective cartels? We argue that the key to understanding the difference lies in supply elasticity. The group discipline, which works in the case of lobbying, can be effective in sustaining a cartel only if increasing output is sufficiently costly—otherwise the incentive to deviate is too great. The theory helps organizing a number of stylized facts within a common framework.