ARE TWO RENTS BETTER
THAN ONE?
THE CASE FOR MONOPOLY
HARVESTER CO-OPS
Dale T. Manning
Hirotsugu Uchida
Colorado State University
Dept. Ag and Res Econ
University of Rhode Island
Dept. Env & Nat Res Econ
2014 IIFET Conference: Brisbane, Australia
Introduction

Harvesters’ co-op gaining attention as management
alternative to:
 Open
access / race to fish-prone management
 IQ/ITQ

Potential internalization of externalities within co-op:
 Temporal
and spatial congestion
 Price externalities (landing timing)

Co-op may also opt to curtail overharvesting
 E.g.,
self-imposed TAC (annual, seasonal, daily)
Introduction (2)

Antitrust law in the US (the Sherman Act, 1890)
 Agreements
that tend to raise price or reduce output are
considered illegal “per se”  falls into “per se” analysis.
 Ex.

Fixing prices, limiting outputs
Fishermen’s Collective Marketing Act (FCMA, 1934)
 Co-op
may be granted a limited exemption from antitrust
liability.
 Self-imposed TAC is “gray area” (Kitts & Edwards 2003)
 Restricting entry is also not allowed.
 New
Member problem (Pintassilgo & Duarte 2001)
Motivation

Price-taker co-op should be fine
 Co-ops
with self-imposed TAC to cutback overharvesting without influencing the output price should
not be barred by antitrust law (Deacon 2012).

The question: co-op with monopoly power
 Cutting
back the harvest volume will generate:
 Monopoly
rent
 Resource rent
Objective

Can a monopolist co-op be justified against antitrust
law?
 Gain

[more efficient resource use] > DWL [open access]
Key factors considered:
 Stock
effect on harvesting cost
 Demand elasticity
Model

Assumptions
 Demand:
p  p(h),
p(h)  0
cost: c  c(h, x); ch  0, cx  0, cxh  0
 Stock growth: F ( x ); F ( x )  0
 Harvest

Sole owner’s objective function (first best)
T
h

max   p( s )  ch ( s, x)ds  e  t dt s.t. x  F ( x)  h
 0

h
0

Monopolist’s objective function
T
max
h
 t
p
(
h
)

c
(
h
,
x
)
e
dt



0
s.t. x  F ( x)  h
Monopolist generates two rents

First order conditions:
owner: 𝑝 ℎ𝑠 − 𝑐ℎ ℎ𝑠 , 𝑥𝑠 − 𝜆𝑠 = 0
 Monopolist: 𝑝′ ℎ𝑚 ℎ𝑚 + 𝑝 ℎ𝑚 − 𝑐ℎ ℎ𝑚 , 𝑥𝑚 − 𝜆𝑚 = 0
 Sole
Monopoly rent
$
Resource rent
$
S s0  ch  0
S s0  ch  0
0
SOA
 ch
0
SOA
 ch
MR
D
0
h0s
h0OA
h
0
h0m
h0s
h0OA
D
h
Steady State

From the model:
 Sole
owner: 𝐹′
𝑥𝑠𝑠𝑠
𝐹′
𝑠𝑠
𝑥𝑚
 Monopolist:

=𝜌+
= 𝜌
𝑐𝑥 ℎ𝑠𝑠𝑠 ,𝑥𝑠𝑠𝑠
𝑝 ℎ𝑠𝑠𝑠 −𝑐ℎ ℎ𝑠𝑠𝑠 ,𝑥𝑠𝑠𝑠
𝑠𝑠 ,𝑥 𝑠𝑠
𝑐𝑥 ℎ𝑚
𝑚
+
𝑠𝑠 ℎ𝑠𝑠 +𝑝 ℎ 𝑠𝑠 −𝑐 ℎ𝑠𝑠 ,𝑥 𝑠𝑠
𝑝′ ℎ𝑚
ℎ 𝑚 𝑚
𝑚
𝑚
Observations:
 The
two coincide in the absence of stock effect (cx).
𝑠𝑠 ≥ 𝑥 𝑠𝑠 .
 Otherwise, from the assumptions 𝑥𝑚
𝑠

SS harvest level comparisons are ambiguous.
Dynamic Adjustments

For both sole owner and monopolist:
 First:
MC curve shifts UP due to shadow value of stock
now being incorporated (“internalization effect”).
 Second: MC curves shifts DOWN due to recovered
stock lowering the marginal cost (“stock-cost effect”).
$
S s0,m
0
SOA
S s1,m
D
0
h
Short vs. Long term effects

Short term (before stock begins to recover) initial
“pain.”
 Harvest
is reduced;
 Stock not recovered  no cost savings.

Long term (stock reaches its steady state) can be
beneficial.
 Depends
 DWL
on the relative size between:
due to monopoly;
 Stock-cost effect.
Monopolist or Open Access?
Stock-cost effect

Comparing:


DWL with respect to open access;
Cost savings from stock-cost effect.
$
SOA
MR
This is also an example
where demand is
relatively elastic.
S ssm
D
0
h0m
h0OA
h
Monopolist or Open Access?
Demand elasticity

Compare with inelastic demand:


DWL with respect to open access;
Cost savings from stock-cost effect.
$
SOA
S ssm
D
MR
0
h0m h0OA
h
Time consideration

Even if Gain > Cost from monopoly in the long run,
need to consider the time needed to reach SS.
 Condition
𝑇
0
ℎ𝑡𝑚
0
for monopolistic co-op to be preferred:
𝑝 ℎ − 𝑐ℎ 𝑑ℎ −
Per period welfare
under monopoly
ℎ𝑡𝑂𝐴
0
𝑝 ℎ − 𝑐ℎ𝑡 𝑑ℎ 𝑒 −𝜌𝑡 𝑑𝑡 > 0
Per period welfare
under open access
Conclusion

Monopolist creates two rents.
mark-up  monopoly rent
 Harvest cost reduction via increased stock  resource
rent.
 Price

Case for monopolistic harvesters’ co-op is stronger:
 Status
quo (open access) is where stock is depleted and
harvest is low.
 Quicker stock recovery / lower discount rate.
 Strong stock-cost effect.
 Elastic demand.
Contact information
Hirotsugu Uchida: uchida@uri.edu
Dale Manning: dale.manning@colostate.edu