Do Price Wars Facilitate Collusion? A Study of the Bromine Cartel before World War I

This paper uses documentary records of the bromine cartel from 1885 to 1914 to evaluate the contributions of noncooperative, repeated game models of collusion to our understanding of the determinants of cartel success and the causes of price wars. It finds that many of the variables that determine an industry’s ability to collude in these models—the discount rate, the information structure, the ability to design rewards and punishments, the beliefs and expectations of participants—were significant determinants of collusive success in the bromine industry as well as other late 19th century industries. It questions the explanation of price wars offered by these models that price wars are equilibrium punishments, implemented because of problems of imperfect monitoring. In 19th century industries, price wars were more likely to result from bargaining or coordination problems. Price wars resulting from imperfect monitoring tended to be short and shallow. As the bromine industry became more concentrated and gained experience working cooperatively, the cartel collected more information and developed alternative punishments to make the use of price war punishments even less likely. r 1996 Academic Press, Inc.