Saturday, August 10, 2013

Cartel Enforcement

... is difficult even when the cartel is legal ... and participation is mandatory. NPR did a recent story on the implementation of agricultural cartels marketing orders. Some farmers will go to lengths to cheat on their allotment. Of course, this is the dominant strategy in the prisoner's dilemma. These cartels are endorsed by the USDA as a way to boost the income of farmers.
Meet Marvin Horne, raisin farmer. Horne has been farming raisins on a vineyard in Kerman, Calif., for decades. But a couple of years ago, he did something that made a lot of the other raisin farmers out here in California really angry. So angry that they hired a private investigator to spy on Horne and his wife, Laura. Agents from a detective agency spent hours sitting outside the Hornes' farm recording video of trucks entering and leaving the property.

What did the Hornes do to become the subject of a surveillance campaign? They sold raisins. More specifically, they sold all the raisins they produced.

In the 1980s, the FTC started an investigation into applying the antitrust laws to these practices. If I recall correctly, Congress passed a law prohibiting the FTC from investigating or issuing a report. It is nice to have powerful friends.

1 comment:

  1. Cartel Enforcement

    Rules made by the Raisin Administrative Committee to control the market supply, and therefore keep prices from falling, do sound like illegal cartel agreements. This reminds me of another NPR news item recently aired about the Swiss Cheese Union.

    The Swiss cheese makers created a cartel to control the production of cheese. They also limited the types of cheese that could be produces form hundreds of varieties to less than 10. What I found most interesting was their inventiveness in creating a demand for their cheese. They used marketing to establish that melted cheese with stale bread, now known to all as fondue, was a traditional food dish of the Alps.

    The Swiss Cheese Union also had difficulty with enforcement of the cartel agreement, much like the Raisin Administrative Committee. Suppliers of a product do not want to be confined by artificial constraints that do not meet the suppliers’ best interest.

    The Swiss Cheese Union is no longer active, and cheese makers are now able to produce many varieties of cheese. What I’d like to understand is why Congress supports the Raisin Administrative Committee. I’m looking forward to the Supreme Court decision.

    Smith, Robert. 4/23/15. How A Swiss Cheese Cartel Made Fondue Popular, NPR