EXCLUSIVE DEALING, SPECIALIZED ASSETS, AND JOINT OWNERSHIP: A STUDY OF THE TUNA INDUSTRY

This is a study of contracting for the supply of U.S. landed tuna. One objective of the study is to show how contracting for U.S. landed tuna promotes competition despite structural and behavioral characteristics which may suggest the contrary. One possible explanation of the price differential between the relatively higher foreign price and the lower U.S. price is that the foreign price reflects the higher costs of marketing tuna through competitive auctions. In the U.S., tuna is marketed more cheaply through contracts for the supply of U.S. harvests. These exclusive dealing arrangements reduce harvesting costs, and competition among U.S. captains to secure delivery contracts (and a share of the marketing cost saving) results in a lower price for U.S. tuna.; Although exclusive dealing is found be to efficient in reducing a specific type of marketing cost, its use is not costless. One malincentive cost of exclusive dealing is that it provides the contracting processor with the incentive to renege on the contract and to appropriate the return to the tuna harvests which become specialized assets under the contract. The incentive to behave in such an opportunistic manner is exacerbated by a technological change in the method of fishing. For this reason, the emergence of several new institutions at the time of the introduction of modern purse-seine vessels into the U.S. fleet is related to the increased costs of assuring contractual performance. The theory is that these new institutions (such as vessel equity and loan commitments by processors) reduce the costs of continuing to use exclusive dealing contracts as bait boats are replaced by modern purse seiners.; A comparison between Japanese and U.S tuna prices over the 1964-80 period suggests that the potential saving in marketing costs under exclusive dealing is in excess of {dollar}12.2 million a year. The study concludes that the U.S. marketing scheme is relatively more efficient in the marketing of tuna for canned consumption whereas the Japanese system is more suitable for marketing tuna for raw consumption.; Four alternative hypotheses to explain the emergence of the major institutional changes in the modern purse-seiner period are considered. Each hypothesis was found to be deficient conceptually and/or to lack empirical support.