Commodity Market Dynamics and the Joint Executive Committee (1880-1886)

Franco Mariuzzo, P.P. Walsh

Research output: Contribution to journalArticle

4 Citations (Scopus)
9 Downloads (Pure)

Abstract

Using weekly spot and future commodity prices in Chicago and
New York, we construct expected transportation rates for grain between
these two cities, expected inventory levels in New York, and realized errors
in the expectations of such variables. We incorporate these exogenous com-
modity market dynamics into Porter’s (1983) structural modeling of the
Joint Executive Committee Railroad Cartel. As in Porter, we model mar-
ginal cost as a parametric function of (instrumented) output, among other
factors. Unlike Porter, we model pricing over marginal cost as a nonparamet-
ric function of a set of variables, which include expectations of deterministic
demand cycles and cartel stability. We estimate the pricing and demand
equation simultaneously and semiparametrically. Our estimated weekly
markups during periods of cartel stability are shown to reflect optimal collu-
sive pricing over deterministic business cycles, as modeled in Haltiwanger
and Harrington (1991). Periods of cartel instability are proven to be triggered
by realized mistakes in expectations of New York grain prices.
Original languageEnglish
Pages (from-to)1722-1739
Number of pages18
JournalThe Review of Economics and Statistics
Volume95
Issue number5
Publication statusPublished - Dec 2013

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