I think this paper is a useful example for economists assigned to
teach micro. I. e. it shows you how not to teach micro, despite the
prestigious academic home of the author. On the other hand, this
could save a lot of preparation time because there is a Power Point
presentation included plus a source for a video of actual collusion
in process.
It is an example of how stuck mainstream academia is in the static
world, despite stabs at dynamic analysis even by mainstream
economists going back thirty or more years. Even Baumol in the 1960s
tried to break with static analysis, though he reverts to static when
there is a plum dangled. This paper in Industrial Organization is
from the world of Joe Bain in the 1950s and '60s.
The author uses the familiar -- and inappropriate -- U-shaped cost
curves to argue that the ADM example validates conventional teaching
on cartels. Which it does not. The problem for ADM and its co-
conspirators is that the cost curves were flat. And it would have
been useful to point out that ADM was fixing prices for other
products as well.
The best part of the paper is the forthright view presented that
cartels are common and that they can persist.
A weakness of the paper is the reference to the book by Kurt
Eichenwald, "The Informant." That book misleads the reader about the
misbehavior of the US Department of Justice, the misbehavior of a big
Washington law firm, and the poor behavior of the FBI. A student
getting the background from The Informant has been sent down the
wrong road. A better reference is Rats in the Grain by James B. Leiber.
I think the lesson of the paper is that academic micro is bankrupt.
It should NOT be taught. I know some on this list attempt to teach
it and then point out its flaws, and/or rebut it. But that seems to
me to be like devoting 4/5 of a semester teaching creationism and
then pointing out that some people believe in evolution.
Gene Coyle
On Jan 12, 2007, at 5:49 PM, Michael Perelman wrote:
http://www.bepress.com/jioe/vol1/iss1/6/
This is the URL for a paper on cartels. It includes links for
covert government
films taken during the lysene conspiracy. It will by of interest
to Gene Coyle &
others with an interest in the ADM case.
--
Michael Perelman
Economics Department
California State University
Chico, CA 95929
Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu
michaelperelman.wordpress.com
