Abstract
The leaf tobacco marketplace is highly organized. Prior to 1940, the few large tobacco companies controlled that organization explicitly. The question is whether this organization set oligopsonistic leaf prices or minimized production and transaction costs. A model of joint oligopsonyoligopoly shows that pricing of cigarettes and leaf tobacco was unified: oligopolistic cigarette pricing was sufficient to curtail both cigarette production and leaf purchases. The companies could just bid in the market for the leaf necessary for that cigarette production rate.Prima facie, the organization was not for oligopsony coordination. The implied econometric model of pricing fits observed behavior well.
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Malcolm Boyd, Dennis Carlton, John Garen, Stephen Karlson, Li Way Lee, An-loh Lin, Robert Miller, Stephen Spurr and the referee have given me thoughtful, perceptive and useful comments. I am pleased to acknowledge their involvement without implicating them in whatever errors remain.
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Hamilton, J.L. Joint oligopsony-oligopoly in the U.S. leaf tobacco market, 1924–39. Rev Ind Organ 9, 25–39 (1994). https://doi.org/10.1007/BF01024217
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DOI: https://doi.org/10.1007/BF01024217