Export Prices and Export Cartels (Webb-Pomerene Associations)

By Milton Gilbert; Paul D. Dickens | Go to book overview

CHAPTER VI

THE ECONOMIC FACTORS DETERMINING EXPORT PRICE POLICY

In this chapter an effort will be made to explain the reasons for the diverse price policies disclosed in chapter V. To be sufficiently comprehensive, this explanation must embrace the reasons of management for its price behavior and also the economic or objective factors which limit management in its choice of price policy. Explaining price behavior is a precarious task, so that the discussion to follow must be considered tentative and exploratory rather than definitive.


EXPORT PRICES HIGHER THAN DOMESTIC PRICES

When an individual or a group of individuals organize a business enterprise there is a presumption that all efforts will be directed to making profits as large as possible within the limitations of legal restrictions and current business mores. It is to be expected that any firm will try to get that price for its product which will yield the greatest net return on its total operations. The impediments to a relatively high price are due, in general, to the prices of competing or substitute products, and/or the reduced volume of sales that results as the price is increased, and/or the variation in costs per unit of product as the output is reduced. If, in view of these conditions, a higher price will result in larger profits, there is a presumption that any firm will charge the higher price. No particular rationalization, therefore, is required to explain the willingness of the firms in group I to charge higher prices on export shipments than in the domestic market. With their knowledge of demand and cost conditions, they presumably are convinced that the higher export prices make their business more profitable than a price equal to, or lower than, the domestic price. What does require explanation, however, is how they are able to get the higher price. What peculiar circumstances give these firms the power to exact a higher export price and what prevents an equally high price in the domestic market?

With regard to the cases of type I the answer to this question is quite simple. The products in both these cases are derived from a raw material of which the major economically available supply is in the United States. Export prices in these cases are admittedly monopoly prices. This export monopoly rests upon two factors: (1) The United States producers collectively control a dominant share of world output and (2) they are effectively organized to control export prices--in these cases legally under the provisions of the Webb- Pomerene Act. Both of these factors are necessary for the maintenance of the higher export price. There must be control of output over the relevant price range. It is obvious that the supply abroad

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