Market Power in International Commodity Trade: The Case of Coffee

This paper studies the impact of market power on international commodity prices. I use a standard oligopoly model and exploit historical variations in the structure of the international coffee bean market to assess the impact of a cartel treaty on coffee prices and its global welfare consequences. The results suggest that the I nternational C offee A greement ( ICA , 1965–89) raised its price by 75% above the C ournot‐competitive level, annually transferring approximately $12 billion from consumers to exporting countries, and its l apse in 1989 explains four‐fifths of the subsequent price decline, that is, the ‘coffee crisis.’