The Effects of Competition: Cartel Policy and the Evolution of Strategy and Structure in British Industry, by Symeonidis, G. Cambridge and London: MIT Press, 2002, x+542 pp., $55.00; £37.95 (cloth)

✍ Scribed by Paul A. Pautler

• Publisher: John Wiley and Sons
• Year: 2002
• Tongue: English
• Weight: 49 KB
• Volume: 23
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/mde.1072

✦ Synopsis

How do industries evolve when competition policy is changed to disallow cartel agreements? In 'The Effects of Competition,' George Symeonidis provides us with his answer to this question based on an examination of the results of a 'natural experiment' in anti-cartel policy in British industry from 1950 to 1975. Britain changed competition policy in the 1950s by outlawing implicit and explicit collusive agreements. The process of removing the agreements was slow and did not really have a significant effect until Court decisions 3 years after the 1956 Restrictive Trade Practices Act. Symeonidis compares the changes in concentration, advertising intensity, innovativeness, and profitability that occurred in those affected industries with changes that occurred in certain unaffected industries to determine whether the change in the competitive regime altered the evolutionary path of the industries that were subject to it.

Coordinating collusive agreements was one of the major functions of the 1940s UK industrial trade associations. The cartel agreements often fixed prices, discounts, and terms and conditions of sale. They did not, however, restrict advertising and marketing, or research and development expenditures. Nor were they typically able to restrict entry into the industries. This last point is crucial for the author's story, because his theories and empirical work are all hinged on a free entry, zero profit equilibrium in both the cartel and competitive years.

So how did the change toward tougher price competition affect various types of industries? To answer the question, Symeonidis started by examining the 1950s industrial agreements of over 200 UK industries. He was able to categorize 71 industries as having effective collusive agreements and therefore experiencing increased competition after 1959. Another 80 industries were placed in the 'no change' category because they did not have a collusive agreement prior to 1956. About 56 industries that did not clearly fall into either of the categories were deleted from the data to provide a more distinct break. Symeonidis finds that the industries with stronger cartellike agreements tended to be those with high sunk costs (high capital costs) and low advertising/sales ratios. R&D intensity did not appear to be closely linked to whether the industry did or did not have a cartel-like agreement in the 1940s and 1950s.

The 151 industries that were placed in the 'change' or 'no change' groups, were also broken into several segments based on objective characteristics}those that produce homogeneous goods with high sunk costs of building plants (e.g., paper, asbestos, copper wire), those that advertise relatively heavily (e.g., hair preparations), and those that spend more heavily on R&D (e.g., pharmaceutical chemicals).

The data exist for very few years between 1953 and 1975. For each industry and year, Symeonidis collected information about the industry's size, capital intensity, advertising intensity, R&D intensity, innovativeness, unionization levels, profitability, and price-cost margins among other things. It appears that considerable care was taken to make the data match the industry categories and to be as accurate as possible given the underlying infirmities always found in industry level data. As a nice touch for the truly interested researcher, the author