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Why did Collusion Fail? The Indian Jute Industry in the Inter-War Years

2005; Taylor & Francis; Volume: 47; Issue: 4 Linguagem: Inglês

10.1080/00076790500132985

1743-7938

Bishnupriya Gupta,

Italy: Economic History and Contemporary Issues

Click to increase image sizeClick to decrease image size Notes I am indebted to John Sutton for valuable suggestions. I thank V. Bhaskar, Oscar Calvo-Gonzales, Nick Crafts, two anonymous referees, and the participants of the Cliometric Society meeting at Miami University, the Economic History Society meeting in Bristol, the Economic and Business Historical Society conference in San Diego, EARIE meeting at Dublin and the Economic History workshops at the London School of Economics and Warwick for comments. I am grateful to the Nuffield Foundation for funding this project and to Sarit Ray of the Indian Jute Mills Association, Calcutta and the staff of the Dundee University Archives and the Centre of South Asian Studies in Cambridge for their help. The errors are mine alone. D. Genovese and W. Mullin, ‘Rules, Communication and Collusion: Narrative Evidence from the Sugar Institute Case’, American Economic Review, Vol.91 (2001), pp.379–98. M.C. Levenstein, ‘Price Wars and the Stability of Collusion: A Study of the Pre-World War I Bromine Industry’, Journal of Industrial Economics, Vol.4 (1997), pp.117–37; idem, ‘Do Price Wars Facilitate Collusion? A Study of the Pre-World War I Bromine Industry’, Explorations in Economic History, Vol.33 (1996), pp.107–37. B. Gupta, ‘The International Tea Cartel in the Great Depression’, Journal of Economic History, Vol.61 (2002), pp.144–59. The terms social status and social origin in this paper refer to racial differences and not differences in class. J.M. Podolny and F.M. Scott Morton, ‘Social Status, Entry and Predation: The Case of British Shipping Cartels, 1879–1929’, Journal of Industrial Economics, Vol.47 (1999), pp.41–67. J. Friedman, ‘A Non-cooperative Equilibrium for Supergames’, Review of Economic Studies, Vol.28 (1971), pp.1–12. E. Green and R. Porter, ‘Non-Co-operative Collusion under Imperfect Price Information’, Econometrica, Vol.52 (1984), pp.87–100. C. D'Aspremont, A.J. Jacquemin, J. Gabszewicz and J. Weymark, ‘On the Stability of Collusive Price Leadership’, Canadian Journal of Economics, Vol.16 (1983), pp.17–25. Most of this literature analyses Cournot competition, although D'Aspremont et al. analyse a price leadership model, where the cartel acts as price leader. S.W. Salant, S. Switzer and R.J. Reynolds, ‘Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot–Nash Equilibrium’, Quarterly Journal of Economics, Vol.98 (1983), pp.185–99. F. Bloch, ‘Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division’, Games and Economic Behavior, Vol.14 (1996), pp.90–123; D. Ray and R. Vohra, ‘A Theory of Endogenous Coalition Structures’, Games and Economic Behavior, Vol.26 (1999), pp.286–336. V. Nocke, ‘Cartel Stability under Capacity Constraints: The Traditional View Restored’, mimeo, London School of Economics, 1999. The phrase is borrowed from Genesove and Mullin, ‘Rules, Communication and Collusion’. A.K. Bagchi, Private Investment in India, 1900–1939 (Cambridge, 1972), p.176. O. Goswami, Industry, Trade and Peasant Society: The Jute Economy of Eastern India, 1900–1947 (Delhi, 1991), p.12. Bagchi, Private Investment, p.263. M. Misra, Business, Race and Politics in British India, 1850–1960 (Oxford, 1999), p.74. Bagchi, Private Investment, p.278. Ibid., p.176. Dipesh Chakravarty, Rethinking Working Class History: Bengal 1890 to 1940 (Princeton, NJ, 1989), p.46. P.S. Lokanathan, Industrial Organization in India (London, 1935), p.187. Ibid. Misra, Business, Race and Politics, pp.81–2. Goswami, Industry, Trade and Peasant Society, fn.4 p.2. O. Goswami, ‘Collaboration and Conflict: European and Indian Capitalists and the Jute Economy of Modern Bengal’, Indian Economic and Social History Review, Vol.29 (1982), pp.142–3. R.S. Rungta, Rise of Business Corporations in India, 1851–1900 (Cambridge, 1970), p.168. G.T. Stewart, Jute and Empire (Manchester, 1998), p.103. Ibid., pp.111–13. Goswami, ‘Collaboration and Conflict’, p.155. Goswami, Industry, Trade and Peasant Society, pp.101–2. The term used for closing down a part of the installed capacity is known as the sealing of looms. S. Jones, Merchants of the Raj: British Managing Houses in Calcutta, Yesterday and Today (Basingstoke, 1992), p.46. The figure was later modified to 12 per cent. Goswami, Industry, Trade and Peasant Society, based on information from Benthall papers, p.137. Chakravarty, Rethinking Working Class, pp.47–8. Goswami, Industry, Trade and Peasant Society, pp.112–13. Memorandum by R.N. Gilchrist of the Indian Civil Service, 10 May 1932, cited in Stewart, Jute, p.97, and Chakravarty, Rethinking Working Class, p.48. Goswami, ‘Collaboration and Conflict’, p.159. The Indian Jute Mills' Association (hereafter IJMA), Report of the Committee, 1926, p.4. Centre of South Asian Studies, Cambridge (hereafter CSAS), Benthall Papers, letter of 11 Nov. 1928, Box 1, File 13. Dundee University Archives (hereafter DUA), Thomas Duff Papers, MS 86/V/7/1, letter of 6 Aug. 1929 Goswami, ‘Collaboration and Conflict’, p.157. Ibid., p.159. CSAS, Benthall Papers, letter of 11 Nov. 1928, Box 1, File 13. Goswami, Industry, Trade and Peasant Society, chapter 6. Stewart, Jute, chapter 3. Chakravarty, Rethinking Working Class, pp.50–60, presents evidence from Benthall papers. CSAS, Benthall papers, letter of 28 Dec. 1928, Box 1, File 13. Goswami, Industry, Trade and Peasant Society, pp.109–10. Chakravarty, Rethinking Working Class, p.57, quotes from the memoirs of G.D. Birla: ‘I was not allowed use the lift to their offices nor sit on their benches while waiting to see them’. CSAS, Benthall Papers, letter of 15 Nov. 1929, Box 1, File 13. Ibid., Diaries, 7 March 1929, Box 7. DUA, Thomas Duff, MS 86/V/7/15, letter of 2 April1930. CSAS, Benthall Papers, letter of 31 Dec. 1928, Box 1, File 13. IJMA, Report of the Committee, 1928, pp.66–8. Table 3 shows the relative size of the managing agents within and outside the cartel. IJMA, Report of the Committee, 1928, pp.70–73. This view appears paradoxical. Nocke argues that it is more difficult to get outsiders into the cartel when demand is low. DUA, Thomas Duff, MS 86/V/7/15, letter of 30 April 1930. Ibid., MS 86/V/7/15, letter of 7 May 1930. Ibid., MS 86/V/7/16, letter of 30 Sept. 1931. Ibid., MS 86/V/7/16, letter of 16 March 1932. Ibid., MS 86/V/7/16, letter of 25 May 1932. Stewart, Jute, pp.115–16. Export quotas were assigned based on past performance with minor concessions to new firms. CSAS, Benthall Papers, Memorandum, 2 July 1935, Box 8. Ibid., letter of 16 Sept. 1935, Box 8. DUA, Thomas Duff Papers, MS 86/V/7/16, letter of 13 Sept. 1935. CSAS, Benthall Papers, letter of 11 Oct. 1935. CSAS, Benthall Papers, letter of 20 Sept. 1935, Box 8. Ibid., letter of 15 May 1929, Box 7. Ibid., letter of 16 Sept. 1935, Box 8. Ibid., letter of 20 Sept. 1935, Box 8. DUA, Thomas Duff Papers, MS 86/V/7/17, letter of 11 Oct. 1935 Ibid., MS 86/V/7/18, letter of 16 Oct. 1935 Ibid., MS 86/V/7/17, letter of 31 Aug. 1936. Ibid., MS 86/V/7/18, letter of 16 Sept. 1936 Ibid., MS 86/V/7/18, letter of 16 Sept. 1936. Stocks had declined in different markets and Yule saw this as a good situation for a price war. Thomas Duff Papers, MS 86/V/7/15, letter of Feb. 1936. CSAS, Benthall Papers, letter of 13 Dec. 1928, Box 1, File 13 DUA, Thomas Duff Papers, MS 86/V/7/15, letter of April 1936. Ibid., MS 86/V/7/18, letter of 25 Jan. 1937. Ibid., MS 86/V/7/18, letter of 27 Oct. 1930. We have information on two firms only and therefore any generalisation must be treated with caution. DUA, Thomas Duff Papers, MS 86/V/7/18, letter of 25 Jan. 1937. Ibid., MS 86/V/7/3, letter of 28 Jan. 1937. Ibid., MS 86/V/7/3, letter of 25 Jan. 1937 Ibid., MS 86/V/7/3, letter of 28 Jan. 1937. Ibid., MS 86/V/7/3, letter of 28 Jan. 1937. Ibid., MS 86/V/7/3, letter of 25 Jan. 1937. Ibid., MS 86/V/7/3, letter of 28 Jan. 1937. Ibid., MS 86/V/7/5, letter of 2 Dec. 1937. Ibid., MS 86/V/7/19, letter of 23 Nov. 1937. Ibid., MS 86/V/7/4, letter of 18 Jan. 1938. Ibid., MS 86/V/7/4, letter of 2 Dec. 1937. Ibid., MS 86/V/7/4, letter of 27 Jan. 1938. Ibid., MS/86/V/,7/4, letter of 4 March 1938 Ibid., MS 86/V/7/4, letter of 15 March 1938. Ibid., MS 86/V/7/4, letter of 31 March 1938. Ibid., MS 86/V/7/4, letter of 28 April 1938. Ibid., MS 86/V/7/19, letter of 12 April 1938. Ibid., MS 86/V/7/4, letter of 30 April1938. Ibid., MS 86/V/7/19, letter of 3 May1938. Ibid., MS 86/V/7/5, letter of 25 May1938. Ibid., MS 86/V/7/4, letter of 27 May 1938. See Table 3. The loomage of the outside mills is understated as this data does not have all outside firms. D. Bernheim and M. Whinston, ‘Multimarket Contact and Collusive Behaviour’, Rand Journal of Economics (1990), pp.1–16. Gupta, ‘International Tea Cartel’.