Sunk Costs and Cartel Formation: Theory and Application to the Dyestuff Industry

Schmitt, Nicolas and Weder, Rolf. (1998) Sunk Costs and Cartel Formation: Theory and Application to the Dyestuff Industry. Journal of economic behavior & organization, 36 (2). pp. 197-220.

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We first develop a simple model of entry showing that cartels are more likely to emerge during periods of downturns and in industries with significant sunk costs. Cartel formation is also accompanied by a decline in profits. We then use the framework to investigate the emergence of the Swiss dyestuff export cartel during the inter-war period and find empirical evidence that supports the main predictions of the model. The analysis indicates that sunk costs and entry may be important determinants of cartel formation and are complementary to the traditional cartel stability conditions.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Aussenwirtschaft und Europ. Integration (Weder)
08 Cross-disciplinary Subjects > Europainstitut > Europainstitut > Europäische Wirtschaft (Weder)
UniBasel Contributors:Weder, Rolf
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:North-Holland, Elsevier
Note:Publication type according to Uni Basel Research Database: Journal article
Identification Number:
Last Modified:26 Oct 2016 11:19
Deposited On:26 Oct 2016 11:19

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