Inside a cartel

John Asker has a terrific paper that looks inside the ‘New York Postage Stamp Dealer Cartel.’ This is a cartel that operated amongst 11 or 12 postage stamp dealers in New York to push down prices at various auctions for postage stamps. Now you might not think this is the most significant cartel in the world but it was significant enough to them to devise an elaborate mechanism including a knockout auction that determined the cartel’s reservation price as well as the side payments to each other. It roughly approximately the Shapley value (something that would take a great deal of sophistication to work out but clearly evolved in this case indicating something deeper regarding its core assumptions). That set of rules had some very interesting properties — including in-built predation against non-cartel members and actually not leading to the lowest price possible for the cartel. I highly recommend the paper as a class act in economic analysis.

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