Export cartel and consumer welfare

• Author: Arijit Mukherjee,Uday Bhanu Sinha
• Published date: 01 February 2019
• DOI: http://doi.org/10.1111/roie.12362
• Date: 01 February 2019

Rev Int Econ. 2019;27:91–105. wileyonlinelibrary.com/journal/roie

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© 2018 John Wiley & Sons Ltd

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INTRODUCTION

During the 1990s, both the United States and the European Union successfully prosecuted more

than 40 international export cartels (Levenstein, Suslow, & Oswald, 2004). Many countries pro-

vide exemptions to export cartels either explicitly or implicitly.1 The prosecutions of such export

cartels are rather limited owing to the lack of international coordination between antitrust agen-

cies. In this context, various scholars have expressed concerns about the impact of such interna-

tional cartels on the importing countries.

More generally, cooperation among competing firms raises serious scepticism among econ-

omists, policy makers, and legal experts. For instance, it is believed that, in the absence of sig-

nificant synergic benefits, firms’ gains from cooperation come at the expense of the consumers

(Farrell & Shapiro, 1990), and create concerns for the antitrust authorities. However, this view

generally ignores the nonproduction activities of firms, for example, innovation (Jacquemin &

Slade, 1989). The Schumpeterian view suggests that cooperation among the competing firms may

benefit the consumers by creating positive effects on innovation (Schumpeter, 1943). However,

there are also concerns about the adverse effects of firms’ cooperation on innovation (Arrow,

1962). More recent concern about the adverse effects of firms’ cooperation on innovation can be

found in Gilbert and Sunshine (1995), Gilbert and Tom (2001), and Gilbert (2006a).2

While there is controversy about the beneficial effects of product‐market cooperation on innova-

tion, recent works show that there exist other channels through which product‐market cooperation

Received: 21 September 2015

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Revised: 18 August 2017

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Accepted: 10 June 2018

DOI: 10.1111/roie.12362

ORIGINAL ARTICLE

Export cartel and consumer welfare

Arijit Mukherjee1

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Uday Bhanu Sinha2

Arijit Mukherjee is also affiliated to CESifo and INFER, Germany, and GRU, City University of Hong Kong, Hong Kong.

1Nottingham University Business School,

United Kingdom

2Department of Economics, Delhi School of

Economics, Delhi, India

Correspondence

Arijit Mukherjee, Nottingham University

Business School, Jubilee Campus, Wollaton

Road, Nottingham, NG8 1BB, United

Kingdom.

Email: arijit.mukherjee@nottingham.ac.uk

Abstract

The purpose of this paper is to show that export cartels are

not necessarily harmful for consumers in the importing

countries. Using a strategic trade policy model, we show

that, contrary to the harmful effect, product‐market coop-

eration benefits consumers by affecting the trade policies.

We further show that consumers in the importing coun-

tries are affected adversely if cooperation is among the

governments of the exporting countries, instead of the ex-

porting firms.