The salt cartels of the nineteenth century were _________ (short/long) lived, in part because individual firms _________ on the cartel.

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1 Application FAILURE OF THE SALT CARTEL THE CONCEPTS #1: Why do cartels sometimes fail to keep prices high? At the beginning of the nineteenth century, high overland trans- portation costs protected salt producers from competition with one another, generating local salt monopolies. Over the course of the nineteenth century, decreases in overland transporta- tion costs increased competition between salt producers and decreased prices. In response to the increased competition, salt producers colluded by forming salt pools, enterprises that set a uniform price and distributed the salt of all participat- ing producers. Some pools established output quotas or paid firms not to produce salt for a year, a practice known as "dead- renting" a salt furnace. Every salt pool eventually broke down, usually within a year or two of its formation. In some cases, individual firms cheated on the cartel by selling salt outside the cartel. In other cases the artificially high price caused new firms to enter the market and underprice the salt pool. Related to Exercises 1.9. SOURCE: Based on Margaret Levenstein, "Mass Production Conquers the Pool: Firm Organization and the Nature of Competition in the Nineteenth Century" Jour- nal of Economic History 55 (1995), pp. 575-611.