Export cartels and economic development

Change log
Chokesuwattanaskul, Peerapat 

This research aims to dispel the myth that export cartels should be prohibited because they restrain competition and, thus, holds back economic development. It also proposes the conditions under which export cartels promote economic development.

In contrast to the myth, this research argues that, when it comes to economic development, competition is not always desirable and, therefore, that export cartels should be formed under certain conditions. In other words, the doctrine that maximum competition is optimal competition is not applicable when the objective is economic development. Moreover, as export cartels from developing countries do not possess market power in the global market, if they facilitate their firms, which are mainly SMEs, to be able to export, competition in the global market is increased, rather than decreased.

We then propose the concept of competition relocation, which argues that cartelisation does not eliminate competition but relocate competition from the activity being cartelised into other activities. The concept rejects the conventional interpretation of competition as a unidimensional action, in which cartels always decrease competition. On the contrary, competition is multidimensional, i.e., firms compete across different activities. Therefore, cartelisation may not eliminate or decrease competition but simply relocates it across different activities and the overall degree of competition might even increase. Export cartels is simply a tool to relocate competition.

Based on the concept of competition relocation, we argue further that, in order to promote economic development, we must make sure that whenever cartelisation promotes the long-term productive capabilities more than competition does, cartelisation should be promoted. To derive the conditions under which export cartels should be promoted, we used both history and game theory. We study the historical lessons of now-developed countries, including Germany, the US, and Japan and draw a game-theoretical model to derive the conditions under which export cartels promote economic development.

In terms of game theory, we propose that the situation in which export cartels should be promoted resembles the stag-hunt game, where both cartelisation and competition are Nash equilibria. Even though it is more productive to hunt a stag together, each hunter has an incentive to deviate and catch a hare. The model shows that, whenever the benefit of sharing resources between firms is sufficiently large (in comparison with other parameters), export cartels are more productive than competition. Therefore, most export cartels have been promoted among SMEs. Moreover, it also shows that, even though each firm may be able to export (due to abundant exclusive resources), the environment, which supports the use of resources across firms, could still make export cartels more productive.

Chang, Ha-Joon
Export cartels, Economic development, Optimal competition, Relocation of Competition, Stag-hunt game, Competition policy
Doctor of Philosophy (PhD)
Awarding Institution
University of Cambridge