Andrew R. Dick

When does organized crime pay? A transaction cost analysis

Abstract This paper develops a transaction cost-based theory of organized crime. Following Schelling ( Journal of Public Law 1967;20:71–84), I treat the organized criminal firm as a formal governance structure that specializes in providing illegal goods and services to downstream buyers. Drawing upon Williamsonian transaction cost analysis and the literature on self-enforcing contracts, the paper predicts which illegal goods and services will be supplied in the marketplace by organized criminal firms versus internally by downstream firms. The paper highlights the joint roles of production scale economies, contracting frequency, transaction specificity, and uncertainty to predict the activities of organized crime. These four factors appear capable of explaining many of the important empirical regularities in markets where organized crime is present.

Strategic trade policy and welfare: The empirical consequences of cross-ownership

Foreign equity ownership is shown empirically to weaken significantly, and occasionally reverse, common strategic trade policy results. Existing levels of U.S. cross-ownership, for example, reduce the average optimal export subsidy by 47% relative to the Brander and Spencer (Journal of International Economics, 1985, 18, 83–100) value. In industries with particularly high cross-ownership and relatively small imputed labor rents, optimal subsidies fall to less than one-seventh of their former level. Previous studies, which overlook high rates of cross-ownership, overstate the effectiveness of strategic policies most sharply in sectors with above-average expected profitability, scope for strategic investments, and barriers to rent dissipation.

Identifying contracts, combinations and conspiracies in restraint of trade

Antitrust guidelines rely on structural screens to review horizontal merger proposals for possible anti-competitive effects. This paper extends this screening approach to forecast where industry cartels will form, and where cartel agreements are more likely to raise price. I test the screens reliability for a unique data set of legal, privately enforced industry cartels that formed under the Webb-Pomerene Export Trade Act. Consistent with screening assumptions, I find that cartels formed more frequently in industries with significant potential market power, high barriers to entry, and conditions facilitating the enforcement of agreements. However, these characteristics generally perform less well at distinguishing when cartels are likely to raise price without generating offsetting cost-savings, suggesting that screening is reliable only as a preliminary check for possible anti-competitive behavior.

The competitive consequences of Japan's Export Cartel Associations

Abstract Japanese antitrust law permits firms to form export cartels that set minimum prices and output quotas, allocate markets, specify design and quality standards, and provide common marketing services. This paper tests three hypotheses about export cartel behavior: (i) that cartels exploit overseas market power, (ii) that cartels lower average selling costs, and (iii) that cartels provide product quality guarantees. This paper finds that Japans export cartels appear most frequently not to have affected perceptibly either industry export price or volume. In industries where cartel effects are found, however, cost reduction and product quality assurance effects have been predominant.