Welfare-Improving Collusion in the Japanese Pork Import Market

Jacinto F. Fabiosa
September 2000  [00-WP 248]

Under the World Trade Organization (WTO) safeguard provisions for pork, Japan can raise its gate price by 24 percent when imports in a given quarter are 119 percent higher than the average imports of the last three years of the same quarter. Both times Japan has invoked this safeguard, reductions in pork exporters' profits have been three times higher. Thus, foreign pork suppliers have an incentive to collude in order to avoiding triggering the safeguard. As the author argues, suppliers construct workable and efficient allocation rules with a multi-plant monopolist structure that allows trade of quota. This collusion is welfare-improving because the safeguard induces more inefficiencies, including larger deadweight.

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