Northeast Fisheries Science Center Reference Document 11-22

Summary of Findings by the 

Center for Independent Experts

Regarding Setting Excessive Share

Limits for ITQ Fisheries

by John Walden

October 2011
Northeast Fisheries Science Center Reference Document 11-22

US DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric Administration

National Marine Fisheries Service

Northeast Fisheries Science Center

Woods Hole, Massachusetts

October 2011

Summary of Findings by the

Center for Independent Experts

Regarding Setting Excessive Share

Limits for ITQ Fisheries

by John Walden

NOAA National Marine Fisheries Service

Northeast Fisheries Science Center, 166 Water St., Woods Hole, MA 02543
Northeast Fisheries Science Center Reference Documents

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This document may be cited as:

Walden J. 2011. Summary of findings by the Center for Independent Experts

regarding setting excessive share limits for ITQ fisheries. US Dept Commer, Northeast 

Fish Sci Cent Ref Doc. 11-22; 104 p. Available from: National Marine Fisheries Service, 

166 Water Street, Woods Hole, MA 02543-1026, or online at http://www.nefsc.noaa.

gov/nefsc/publications/
Part I: Preface 

by 

John Walden 
Part I. Preface: John Walden 

1 

EXECUTIVE SUMMARY 

 The Center for Independent Experts (CIE) provided three individuals to evaluate a report 

(the Excessive Shares Report) commissioned by the National Marine Fisheries Service (NMFS) 

for setting an excessive share limit in catch share fisheries, and more specifically, the Surfclam 

and Ocean Quahog ITQ fishery. The CIE provides scientific expertise to conduct independent 

scientific peer reviews for NMFS based on specific Terms of Reference (TOR’s) provided to the 

reviewers. Both the CIE and the NMFS Office of Science and Technology consider the purpose 

of the CIE review to be to examine the scientific merit of reports, and not to make policy 

recommendations. The three CIE reviewers chosen for this study were Dr. Ani Katchova, 

University of Kentucky, Dr. Ragnar Arnason, University of Iceland, and Dr. Rigeberto Lopez, 

University of Connecticut. Dr. James Wilen, University of California-Davis was the Mid-Atlantic 

Council Scientific and Statistical (SSC) Committee representative who chaired the meeting. The 

panel met June 21-23, 2011 in Falmouth and Woods Hole, MA to conduct a public review of the 

report, to accept public comment, and to question the consultants who prepared the report. 

 The CIE review of the excessive shares report presented unanticipated challenges. The 

topic of excessive shares in an ITQ fishery is relatively new in NMFS, and the economics needed 

to fully understand the issue are quite complex. Therefore, the discussion at the public meeting 

was highly technical and covered a great deal of territory. Additionally, the CIE reviewers were 

given a large amount of information during the meeting that they would need time to fully 

review outside of the meeting. Near the conclusion of the meeting it became apparent that the 

reviewers would have a difficult time reaching a consensus on a number of points before the 

meeting ended. The panelists agreed that they should end the meeting so they could individually 

review the material which was presented to them, and prepare their reports. The CIE reviewers 

also agreed that they would send a copy of their individual reports to the Chair, who would then 

prepare a summary report based on their individual reports. However, the following week it was 

learned that the CIE Directorate would not allow the CIE panelists’ individual reports to be sent 

directly to the Chair which put the Chair in the position of being unable to produce a summary 

report. 

 In lieu of a formal summary report by the Chair, therefore, this Executive Summary 

simply lists the findings of the individual reports that were submitted by the CIE reviewers for 

each Term of Reference (TOR). Each CIE report is then included as a separate chapter in this 

document. This summary makes no value judgments on the findings of the CIE reviewers, and 

does not attempt to endorse or reject any of their findings. 

Each CIE panel member presented their own findings and did not necessarily agree with 

one another on their responses to each individual term of reference. However, there were four 

areas that all three reviewers seemed to agree with in their individual reports. They were: 

1. The method proposed by the Technical Group is based on the HHI, which means that 

evaluation of potential market power is consistent with what is done in other industries. 

2. The Technical group appropriately modified the application of the HHI to consider 

competition from non-SCOQ clams as well as the aggregate share held by fringe holders. 

Within the framework given, the method proposed did not contain any errors. However, 

in order to apply the method, more data are needed along with a better understanding of 

the industry. 
Part I. Preface: John Walden 

2 

3. More transparency is needed for quota prices. An auction mechanism would be one 

method that could be used to reveal quota prices. 

4. The Technical Group should have paid more attention to the monopsony problem, which 

is the ability of processors to exert market power on the harvesting sector. This may be of 

greater concern than the monopoly problem. 
Part I. Preface: John Walden 

3 

TERMS OF REFERENCE (TOR): 

1. Describe the Method or Process used by the NMFS Technical Group for 

determining the maximum possible allowable percentage share of quota 

ownership that will prevent an entity from obtaining Market power. 

Note: There is no disagreement on this TOR as it merely asks the reviewers to provide a 

description of the methodology used by each reviewer. 

Arneson: 

Technical group applied the standard theory of competition and market power to the problem, 

using Horizontal Merger Guidelines. 

Katchova: 

Described six part process recommended for determining excessive share limit. 

Lopez: 

Described the seven part process used to determine an excessive share cap, and also described 

the corollary rule that there should be at least three firms. 

“As with any excessive-share cap, the process requires information on ITQ ownership and 

control, substitutability of products, and definition of relevant markets or size of the market in 

order to compute the correct market shares.” 

“In the business literature, there is a widely accepted notion that a Rule of Three structure is 

optimal because three big and efficient companies (e.g., with more than 10% market share) act as 

a tripod to ensure that neither destructive competition nor collusion prevails (see Sheth, J.N. and 

S. Sisodia, The Rule of Three: Surviving and Thriving in Competitive Markets. New York: Free 

Press, 2002) 

 
Part I. Preface: John Walden 

4 

2. Evaluate the strengths and weaknesses of the proposed method developed by 

the NMFs Technical Group for determining maximum possible allowable 

percentage share of quota ownership. Review and comment on the data 

requirements necessary for applying the proposed methods. 

 

Arnason: 

Strengths: 

1. It is based on the standard theory of monopolistic competition. 

2. It is based on the Horizontal Merger Guidelines. This has the advantage of 

guaranteeing symmetrical treatment with other industries. 

3. It is fairly clear and systematic 

4. Within its own framework, it does not contain any serious errors. 

Weaknesses: 

1. Does not deal with the issues in sufficient depth. 

2. Does not systematically cover all the key economic factors necessary for deciding a 

sensible counter-monopoly policy. 

3. Puts too much emphasis on the HHI Index. 

4. Contains no formal analysis of the fundamental factors affecting monopolistic 

behavior in the fisheries. 

5. Does not consider the monopsony problem. 

“In summary: to set the appropriate ‘excessive size’ limit in any given fishery a great amount of 

empirical information and investigation is needed” 

Katchova: 

Strengths: 

1. Follows horizontal Merger guidelines. 

2. Technical group appropriately modified the application of the HHI index to consider 

competition from non-SCOQ clams as well as the aggregate share held by fringe 

holders. 

3. Additional “three firm” rule has support in the literature, but it is unclear if the rule 

should still be applied if there is a conflict between the two rules. 

Weaknesses: (note that Dr. Katchova did not explicitly list weaknesses. This is my interpretation 

of her text). 

1. In order to determine the boundaries of the relevant market, reliable data on prices 

and quantities are needed, which are not available. In the absence of reliable data, 

there needs to be an in-depth understanding of the industry, major players, and 

products. 
Part I. Preface: John Walden 

5 

2. Excessive Share cap will need to be updated over time. 

3. HHI is applicable to homogenous products, and not differentiated products, and 

qualitative data needs to be available whether processors produce differentiated 

products. 

4. Report did not explore monopsony problem, which may be just as important as 

monopoly power. 

5. Reliable data on quota prices are needed. 

6. Costs associated with implementation of an excessive share caps as well as 

monitoring and enforcement are likely to be substantial. 

Lopez: 

Strengths: 

1. Used the Horizontal Merger Guidelines, and a HHI threshold of 2,500, which is 

deemed the “Gold Standard” for analyzing competition in the United States and 

abroad. It brings the problem into a class of more generalizable situations for which 

ready comparisons can be made across fisheries and non-fishery cases. 

2. Inclusion of state fisheries, imports and fringe firms in calculation of the HHI. The 

larger the relevant market or degree of demand substitution from outside the fisheries 

area, the greater the allowable excessive-share cap. 

3. Requiring three “efficient” processors under the suggested HHI will encourage 

economies of size as well as ensuring a minimum degree of competition in the 

geographic region of the fisheries, regardless of the size of the relevant market for 

processed fishery products. 

 

Weaknesses: 

1. Focus exclusively on monopoly power at the expense of monopsony power. A fishery 

is more likely to face monopsony power than monopoly power. 

2. Lack of explicit consideration of harvesting and processing efficiency, which may 

give room to improve performance of the fishery, particularly if market power effects 

are weak. Cost reductions may reduce or even reverse a firm’s incentive to elevate 

price in the monopoly case. 

3. Numerator of Market Shares. The current definition of an excessive-share cap 

separates ownership and control and can yield a situation where a single processor 

processes 2/3 of the harvest but only officially controls 1/3 of the quota without 

owning any. In the standard literature, 2/3 purchase of the total volume would be of 

concern. 

4. The relevant product and geographic markets are not defined, although market shares 

are computed as the ratio of the quota or cap shares divided by the relevant market. 

Implementation of the Method Proposed by the Technical group requires at least the following 

data: 
Part I. Preface: John Walden 

6 

1. Quota ownership and control 

2. Processing volumes and capacity. 

3. Size of the relevant market. 

 
Part I. Preface: John Walden 

7 

3. Evaluate applicability of the proposed methods to the Surfclam/Ocean Quahog 

ITQ fishery. If there is disagreement with what the NMFS Technical Group 

recommended, clearly state that and your reason why. 

Arnason: 

1. Method is superficial; Does not go into sufficient depth. 

2. It offers little data about the structure of the industry. 

3. Ignores possible costs of monopolistic behavior, the benefits of returns to scale, and 

the cost of imposing and operating “excessive size” limits. 

4. Ignores the monopsony problem. 

5. Recommended Excessive Share Cap seems “ad-hoc”. 

6. Concludes that there is insufficient data to set any cap at this stage, so the prudent 

course of action is to refrain from doing so. 

Katchova: 

1. The NMFS have done the best possible analysis given the substantial problems 

related to data limitations and availability. 

2. More transparency is needed for quota prices. 

3. There is considerable uncertainty with regards to the size of the market (imports, 

fringe holders) and market share of participants. 

4. The correct determination of post-transfer quota ownership and control is extremely 

important in the implementation, monitoring and enforcing of the excessive-share 

cap. 

5. Viewed recommendations as general guidelines (perhaps even as lower bounds) for 

setting an excessive share cap. 

Lopez: 

1. The approach used by the Technical Group is generic and is applicable to just 

about any fisheries, provided accurate information is obtained on quota rights and 

control, boundaries and the relevant market, and efficiency effects of the scale of 

operation. 

2. Although a 30-40% cap may be restrictive if the market is defined too narrowly or 

if efficiency effects of concentration are ignored, it is likely to be appropriate if 

there are buying power or monopsony concerns since, for the latter, the relevant 

market is geographically confined to the fishery in question. 

3. Besides the monopsony and efficiency concerns pointed out, the main room for 

improvement is collecting accurate information about the fishery, the market, and 

performance indicators such as quota price. 

4. The key number emerging from the report is a 40% excessive share cap, which 

automatically ensures independent harvest supply to sustain at least three 

processors in the market. 

5. There is no constitutional basis to interpret “excessive” solely based on market 

power, or in this case, monopoly power. 
Part I. Preface: John Walden 

8 

6. In conclusion, an excessive share cap of 30-40 or the two-part cap counterpart 

might be rather conservative estimates, and that it might not be surprising that, 

considering efficiency impacts, an excessive share cap of 2/3 of TAC or 

eventually a natural monopoly or monopsony might be preferable. 

 
Part I. Preface: John Walden 

9 

4. Evaluate whether the approach outlined by the NMFS Technical Group is 

reasonable for setting excessive share limits in fisheries managed through catch 

shares? As part of this TOR, comment on any constraints that may hinder 

application of the methods proposed by the NMFS Technical Group. 

Arnason: 

1. The Approach Outlined is inadequate as a general framework for setting excessive 

share limits in fisheries in general. 

Katchova: 

1. The approach outlined by the NMFS technical group is generally applicable to other 

fisheries managed through catch shares. 

2. Several factors are very important to take into consideration when applying these 

methods to other fisheries. These factors include: whether or not the TAC is binding, 

whether or not quota prices are transparent and are of significant value, the 

determination of relevant markets and substitutability with other products, whether 

ITQ are assigned to vessel owners or not, etc. 

Lopez: 

1. The approach used by the Technical Group is generic and is applicable to just about 

any fishery, provided accurate information is obtained on quota rights and control, 

boundaries of the relevant markets, and efficiency effects of scale of operation. 

2. The main constraint remains access to the accurate information needed to 

appropriately implement the approach. As in any market, full and accurate information 

is needed for markets to work smoothly. Asymmetric information will generate 

advantages to those who have access to it and will make the regulator’s job more 

imprecise and difficult. 

5) Provide any recommendations for further improvements. 

Arnason: 

1. To be usable as guidance for setting excessive share limits in the SCOQ fishery and 

other ITQ fisheries, the procedures need to be complemented by the following: 

a. A careful general theoretical (discussion) of the factors that influence 

monopolistic behavior in ITQ fisheries in general 

b. A clear and well-developed prescription as to how to estimate and update the key 

relationships that are identified by the theoretical study. 

c. Additional steps having to do with the assessment of “deadweight loss” of 

monopolistic behavior, the possible loss of scale efficiencies that might result 

from “excessive share” limits and the costs of implementing and operating a 
Part I. Preface: John Walden 

10 

system of “excessive share” limits. 

“To carry out these additions and improvements requires considerable amounts of high level 

expertise and will inevitably be quite time consuming and costly.” 

Katchova: 

1. An open auction or other mechanism to reveal quota prices and make the market for 

quota transfers liquid and transparent needs to be established. 

2. More information can be collected from industry participants regarding market shares, 

major buyers of processed output, prices paid and received for clam inputs and 

outputs. There needs to be a general description of all players from crew members to 

distributors. 

3. Further studies need to be done on the cost efficiencies of operating as large 

processors. 

4. Further studies are needed on the monopsonization of the input markets. 

Monopsonization of the input markets is a larger concern than monopolization of the 

output markets. 

5. Other instruments for controlling market power beyond an excessive share cap should 

be considered. 

6. Monitoring and Enforcement of the excessive share cap will need to be studied and 

implemented. 

“The main challenge is with regards to the application of the proposed methods because of the 

lack of appropriate data on the size of the market, the major participants and market shares, 

relevant markets, substitutability of products, and transparency of quota ownership and prices.” 

(Conclusion) 

“Overall, the NMFS technical group’s study is well executed and provided a good starting point 

in establishing an excessive-share cap in the Surfclam and Ocean Quahog Fishery.” (Conclusion) 

Lopez: 

1. Focus more on the potential monopsony power effects rather than just the monopoly 

power, explicitly considering alternative vertical coordination arrangements. 

2. Focus more on potential price effects rather than just the HHI, explicitly considering 

harvesting and processing efficiency effects. 

3. Collecting information on the price of the quota, either through creating an auction 

mechanism to reveal prices or by soliciting this information explicitly from quota 

holders. 
Part II: Peer Review Report 

by 

Ragnar Arnason 
Part II. Peer Review Report: Ragnar Arnason 

External Independent Peer Review by the Center for Independent Experts 

Evaluation of excessive shares study in the Mid-Atlantic 

surfclam and ocean quahog ITQ fishery 

Prepared by 

Independent Reviewer: Ragnar Arnason 

July 7 2011 
Part II. Peer Review Report: Ragnar Arnason 

Table of Contents 

 Page 

 Executive summary 3 

1. Background 5 

2. Description of Reviewer’s role in Review Activities 6 

3. Summary of Findings 7 

 Concentration 7 

 Market power 7 

 Exercise of market power 8 

 Market power in an ITQ fishery 8 

 Controlling market power 11 

 Responses to the specific items in the TOR 11 

4. Conclusions and recommendations 15 

 Addendum 1. Monopolistic behavior: Basic theory 16 

 Addendum 2. Monopolistic behavior in an ITQ fishery: Analysis 19 

 Appendix 1. Bibliography 28 

 Appendix 2. Statement of work 30 

 Appendix 3. Panel membership 39 

Acronyms 

 NFMS National Marine Fisheries Service 

 MAFMC Mid-Atlantic Fishery Management Council 

 SCOQ Surfclam and ocean quahog 

 CIE Center for Independent Experts 

 ITQ Individual transferable quotas 

 TAC Total allowable catch 

 SOW Statement of Work* 

 TOR Terms of reference 

 HH Herfindahl-Hirchman index 

 HMG Horizontal merger guidelines 
Part II. Peer Review Report: Ragnar Arnason 

3 

Executive Summary 

1. The surfclam and ocean quahog (SCOQ) fishery was subjected to ITQs (individual 

transferable quotas) in 1988. Since then industrial concentration in the fishery has 

increased substantially [Chapter 3, p. 7] 

2. In competition theory, market power is defined as the ability of companies to profitably 

manipulate output (or input) prices. This activity, while profitable for the companies, 

usually corresponds to an overall economic loss for society. [Chapter 3, p. 8] 

3. Increased concentration in ITQ fisheries is a matter of social concern. Accumulation of 

quota-share holdings may provide companies with market power and enable them to 

influence prices in input and output markets. [Chapter 1, p. 5] 

4. The Magnuson-Stevens Act states that ITQ privilege programs should ensure that 

limited access privilege holders do not acquire an excessive share of the total limited 

access privileges in the program. The National Standard 4 of the Magnuson Act 

imposes a similar requirement. [Chapter 1, p. 5] 

5. Measures of industrial concentration in the SCOQ fishery (the Herfindahl-Hirchman 

index) suggests that marketing power may exist in the fishery, particularly in its 

harvesting and processing sectors, but less so in quota holdings. [Chapter 3, pp.7-8] 

6. These concentration measures are only indicative of the possibility of market power. 

They do not establish that it actually exists. In fact, the report by the NMFS Technical 

Group does not provide evidence of actual market power in the SCOQ fishery. [Chapter 

3, pp. 8-9] 

7. It should be noted that even when market power exists it may not be exercised for a 

number of reasons. In fact, the report by the NMFS Technical Group does not find any 

evidence of the actual exercise of market power in the SCOQ fishery [Chapter 3, p. 8] 

8. Due to the inherent complexity of ITQ fisheries, the determination of market power is 

more complicated than in more standard industries. It follows that to determine 

“excessive shares” in the sense of generating market power requires deeper analysis and 

more complicated expressions [Chapter 3, pp. 8-10, Addendum 2.] 

9. In an ITQ fishery the main tool for manipulating prices and, thus, exercising market 

power is to withhold quotas from fishing. Quotas may be held by fishers, fish 

processors, quota-holders which are neither and any combination of the three. Clearly 

the commercial interests of these types of players are not identical and, in some 

respects, they may be contrary. It follows that the distribution of quota holdings or 

quota control among these three types of players in the fishery is a major factor in the 

possible exercise of market power. [Chapter 3, pp. 9-10] 

10. A limited theoretical analysis to account for some of the complex aspects of market 

power and monopolistic behavior in ITQ fisheries suggests that what constitutes 

excessive shares (in the sense of generating market power) is a function of a number of 

empirical variables in the fishery including various elasticities, the market price of 

quota, the output price of fish and other variables. In a comparatively simple framework 

this function may be expressed as: 

( ( , ), ( , ), ( , ), , ) crit   E pH EwH EsH s p  , 

where crit is the critical share of the company before it becomes excessive. The first 

three terms of the function  denote the elasticities of output price, input price and 
Part II. Peer Review Report: Ragnar Arnason 

4 

quota price with respect to harvest. s represents the market price of quota and p the 

price of landed catch. Finally,  is the ratio of costs to revenues for the company. 

Obviously, to determine “excessive share” in a sensible manner requires an empirical 

estimate of all of the variables entering the function . More realistic situations will 

undoubtedly involve more variables [Chapter 3, pp. 9-10 and Addendum 2] 

11. The fundamental economic justification for controlling market power and, more 

generally, curtailing monopolistic behavior is to avoid the “deadweight loss of 

monopolies” which is the economic cost resulting from altering quantities to influence 

prices. [Chapter 3, p. 10 and Addendum 1] 

12. However, in order to form a socially beneficial policy regarding market power, this cost 

must be balanced against (i) the possible gains in economic efficiency due to scale 

economies that may be captured by large companies and (ii) the cost of implementing 

and enforcing the regulations to curtail market power. [Chapter 3, p. 11] 

13. Limitations of company share of quotas or relative size in general are a particularly 

blunt tool to curtail the exercise of market power. It may well be preferable to ignore 

company size but focus instead on methods to counteract monopolistic behavior more 

directly. [Chapter 3, p 11. and Addendum 1] 

14. As a procedure to determine “excessive share” limits in the SCOQ fishery, the method 

proposed by the Technical Group is unsatisfactory. Among other things: 

(1) It does not go into sufficient depth in analyzing this particular industry and the role 

of ITQs in possible monopolistic behavior by the companies. 

(2) It offers little data about the structure of the industry and the operations of the key 

markets and virtually none on the relationships that determine what constitutes an 

“excessive share”. 

(3) It totally ignores certain key aspects of the economic situation such as the cost of 

possible monopolistic behavior, the possible benefits of returns to scale and the 

cost of imposing and operating “excessive share” limits. 

 As a result, the recommended “excessive share cap” for the SCOQ fishery has little if 

any foundation in either solid theory or empirical data. [Chapter 3, pp.13-14] 

15. My conclusion is that the evidence provided in the Technical Group report is 

insufficient to set any particular share cap on the companies in this fishery. Given the 

possible costs of an erroneous cap, the prudent course of action seems to be to set no 

cap at the current time. [Chapter 3, p. 14] 

16. It is further my conclusion that the approach outlined in the Technical Group Report, 

although a helpful step in the right direction, is inadequate as a general framework for 

setting excessive share limits in fisheries in general. [Chapter 3, p. 14] 

17. Given the high economic value of fisheries already under ITQs in the US, the legal 

requirement to set excessive share limits and the potential economic costs of setting 

such shares inappropriately, it is urgent to develop a theoretically consistent and 

empirically robust procedure to assess what constitutes “excessive share”. It is strongly 

recommended that concerted research and development work of this nature be initiated 

as soon as possible. [Chapter 3, p. 15] 
Part II. Peer Review Report: Ragnar Arnason 

5 

1. Background 

On May 12, 2011, I agreed to serve, on behalf of the Center for Independent Experts (CIE), as 

an independent external reviewer of the “Evaluation of excessive shares study in the MidAtlantic surfclam and ocean quahog ITQ fishery” that had been prepared for the National 

Marine Fisheries Service (NMFS) and the Mid-Atlantic Fishery Management Council 

(MAFMC) by a Technical Group of Experts. 

The surfclam and ocean quahog (SCOQ) fishery was subjected to an ITQ (individual 

transferable quota) system in 1988. Under the ITQ system, economic efficiency of the fishery 

seems to have improved substantially (Mitchell et al. 2011, MAFMC and NMFS 2010). 

Presumably related to this, industrial concentration in the fishery has increased, especially 

when measured by the number and size distribution of active companies and fishing vessels 

(Mitchell et al. 2011, MAFMC and NMFS 2010). Apparently there has also been some, 

although smaller, increase in the concentration in quota holdings but the extent of this is less 

clear (Mitchell et al. 2011, Social Sciences Branch 2009). 

Increased concentration in ITQ fisheries is a matter of social concern. Accumulation of quotashare holdings may provide companies with market power and enable them to influence 

prices in input and output markets. The reauthorized Magnuson-Stevens Act (2006) states that 

ITQ privilege programs should ensure that limited access privilege holders do not acquire an 

excessive share of the total limited access privileges in the program. The National Standard 4 

of the Magnuson Act requires that fishing privilege allocations be carried out so that “no 

particular individual, corporation, or other entity acquires an excessive share of such 

privileges” (SOW, appendix 2). It is, however, not clear what constitutes an “excessive share” 

in this context. 

To deal with the issue of “excessive share”, a Technical Group of Experts (referred to in the 

TOR as the NMFS Technical Group) was created. This technical Group, whose membership 

was provided by the consultancy company Compass Lexecon, submitted a report titled 

“Recommendations for Excessive-Share Limits in the Surfclam and Ocean Quahog Fisheries” 

(Mitchell et al. 2011). This report (i) outlines a procedure for determining an “excessive 

share” in any fishery and (ii) suggests an excess share limit for the SCOQ fishery. 

Given this context, I was specifically requested to address the following issues: 

1. Describe the method or process used by the NMFS Technical Group for determining 

the maximum possible allowable percentage share of quota ownership that will 

prevent an entity from obtaining market power. 

2. Evaluate the strengths and weaknesses of the proposed method developed by the 

NMFS Technical group for determining maximum possible allowable percentage 

share of quota ownership. Review and comment on the data requirements necessary 

for applying the proposed methods. 

3. Evaluate application of the proposed methods to the Surfclam/Ocean Quahog ITQ 

fishery. If there is disagreement with what the NMFS Technical Group recommended, 

clearly state that and your reason why. 

4. Evaluate whether the approach outlined by the NMFS Technical group is reasonable 

for setting excessive share limits in fisheries managed through catch shares? As part of 
Part II. Peer Review Report: Ragnar Arnason 

6 

this TOR, comment on any constraints that may hinder application of the methods 

proposed by the NMFS Technical group. 

5. Provide any recommendations for further improvement 

Further details of my obligations under this contract are set out in the Statement of Work a 

copy of which is found in Appendix 2 of this report. 

My work on this review was primarily carried out during the period June 15 to July 7 2011. 

The first part of the period was used to collect background information and study the material 

on this issue provided by the CIE. A Panel Review meeting took place in Falmouth and 

Woods Hole on June 21-23. The period after that was used to assess the information and 

findings at this meeting to undertake further analysis of the issues and to prepare this report. 

2. Description of Reviewer’s role in Review Activities 

The review work was for the most part carried out during the period June 15 to July 7, 2011. 

It is primarily based on (i) two reports supplied to me by the CIE (Mitchell et al. 2011 and 

MAFMC and NMFS 2010, see bibliography), (ii) a number of background articles and reports 

that I located (see bibliography),(iii) the background presentation given by the MAFMC 

representative (vice chairman Lee Anderson)and the presentation given by Technical Group 

representatives (S. Peterson and G. Mitchell) at the Peer Review Meeting on June 21-23 and 

questions and discussions during that meeting, (iv) further information about the SCOQ 

fishery provided by the staff at the Northeast Fisheries Science Center (especially J. Walden) 

and (v) my own general knowledge on the subject. Much of the written material used in this 

review is listed in the bibliography. 

During the Peer Review Meeting June 21-23, I had the opportunity to ask questions for 

clarification and discuss the various aspects of the report by the Technical Group and the 

competitive situation in general. During that meeting I received honest and clear answers to 

all my questions. The general discussion was also, in my opinion, extremely informative and 

useful to all participants. 

During the Peer Review Meeting I inevitably became privy to views and comments made by 

my fellow reviewers. This report, however, contains exclusively my own assessments and 

evaluations. 

In further detail my review activities proceeded as follows: 

 June 15-20. Collect and study background material including the documentation 

supplied by the CIE. 

 June 20-June 24. Travel to and attend the panel meeting at NEFSC in Woods Hole. 

 June 25-July 7. Study of material, further analysis and the preparation of my draft 

review report. 
Part II. Peer Review Report: Ragnar Arnason 

7 

3. Summary of findings 

The Surf Clam and Ocean Quahog (SCOQ) fishery off the Atlantic coast of the US has a 

considerable history going back to at least to the 1960s (FAO 2011). This is not a particularly 

large fishery. In recent years the harvest in federal waters has been just over 6 million bushels 

(MAFMC and NMFS 2010) with an approximate landed value of between $50 and 60 

million.1

 Landings have been quite stable over time and so, apparently, have unit prices of 

landings. 

From the 1970s until 1988, this fishery was regulated by a number of technical measures 

including restrictions on vessel entry, fishing effort, seasons and fishing gear (Adelaja et al. 

1998, MAFMC and NMFS 2010). These policies led to an increasingly over-capitalized and 

inefficient fishery (Marvin, 1992; Adelaja et al. 1998). Following amendment 8 to the Fishery 

Management Plan for this fishery set by the MAFMC in 1988, the SCOQ fishery was 

subjected to an ITQ system leading to a substantially improved economic efficiency 

(MAFMC and NFMS 2010). 

Concentration 

Since the adoption of the ITQ system in 1988, there has been substantially increased 

concentration in the fishery with respect to the number of active fishing vessels and the 

number of processing companies. There also seems to have been certain concentration in 

quota ownership although, apparently, to a lesser degree (Social Science Branch 2009, 

Mitchell et al. 2011). 

The current level of concentration in the industry is to a certain extent measured by the socalled Herfindahl-Hirchmann (HH) index (Hirchman 1945, Herfindahl 1950).2

 According to 

the Technical Group Report (Mitchell et al 2011), the number of processing plants has been 

reduced from 44 in 1979 to 12 in 2011. In terms of purchases the HH-index for surfclams 

grew from 2068 in 2003 to 3134 in 2008 and that for ocean quahogs from 3431 to 4369 

(Mitchell et al. 2011). Similar statistics for the development of concentration in quotaholdings and harvesting are not available. However, in 2009, the combined (both species) 

HH-index for quota holdings was 993 and for the harvesting activity 2890 (Mitchell et al. 

2011). 

These values of the HH index may be compared to the thresholds defined in the US 

government Horizontal Merger Guidelines (anonymous 2010) according to which industries 

with an HH index below 1500 are considered unconcentrated and those with an HH index 

value above 2500 highly concentrated. 

Market power 

In competition theory, market power refers to the ability of companies to profitably 

manipulate output (or input) prices. More formally, market power may be defined to exist 

 

1

 This estimate assumes a landings price of $12 for a bushel of surfclams and $6 for a bushel of ocean quahog. 

2

 The HH-index is just one of many possible single-number-measures of concentration. As all single-numbermeasures of complicated phenomena, this measure suffers from severe limitations one of which is the lack of 

uniqueness, i.e. the same index number generally corresponds to many different combinations of company 

sizes and number. It is worth noting that as pointed out by Hirchman (1964), his initial definition and use of 

this index preceded that of Herfindahl by five years. 
Part II. Peer Review Report: Ragnar Arnason 

8 

when a firm (or a group of firms, acting jointly) are able to raise output price above the 

competitive level without losing sufficient sales to make the price increase unprofitable 

(Landes and Posner 1981, Tirole 1989). Given this definition, some degree of market 

concentration is obviously necessary to provide market power to one or more companies. It is, 

however, not by any means sufficient. To see this, one only has to note that a single company 

(therefore having an HH-index of 10000) operating in a market with perfectly elastic supply 

and demand curves has no market power. 

According to the concentration thresholds set by the Horizontal Merger Guidelines mentioned 

above, there are indications of market power in the harvesting and processing activity but 

much less so for quota holdings. It should be stressed, however, that due to the imperfectness 

of the HH-index and the gap between HH-concentration measures and market power, these 

are only indications of possible market power. The HH-index measures obtained by no means 

establish that there actually exists market power in these sectors of the SCOQ fishing 

industry. By the same token, the low HH-index measure of quota holdings can not be taken to 

show that there is no market power in this sector of the SCOQ fishery. Indeed, there are 

indications that the real control of quotas may well be more concentrated than the formal 

ownership. 

Exercise of market power 

It is important to realize that the existence of market power (in the sense defined above) does 

not imply that it will be exercised. There can be several reasons for this including the 

following: 

(1) The company having market power does not realize this and acts as if it had none. 

(2) The company simply prefers to accept normal (rather than monopoly) profits 

possibly for reasons of maintaining its reputation or because of perceived social 

responsibility. 

(3) The company is deterred by the illegality of and possible sanctions for exercising 

market power. 

(4) The exercise of market power requires co-ordination with other companies which 

is too difficult (or costly) to arrange and maintain. 

It follows that even if it can be shown that market power exists, it has not been established 

that this power is actually being exercised. 

Market power in an ITQ fishery 

Due to the complexity of ITQ fisheries (caused by the quota constraint, quota trading and the 

inherently dynamic nature of the fishery and quota holdings), the determination of market 

power in an ITQ fishery is much more involved than for standard (textbook) industries. It 

follows that the relevant relationships must be carefully analyzed and examined in order to 

determine the existence of market power. Certain aspects of possibly major importance are 

listed below: 

(1) In an ITQ fishery, to the effect that monopolistic behavior depends on constraining 

quantity, market power resides largely with quota holders. Quota use determines 

catches and subsequent outputs in the production chain. All other quantities entering 
Part II. Peer Review Report: Ragnar Arnason 

9

the production chain depend functionally (via production functions) on the volume of 

catches with, generally, relatively little scope for substitutions. 

(2) The ITQ system alters opportunities for monopolistic behavior in fisheries in two 

somewhat opposite ways: 

(i) The imposition of an upper level quantity constraint (the TAC) reduces the scope 

for quantity adjustments in the fishery (and downstream activities). In fact, the 

TAC may easily be less than the monopoly point for the companies. 

(ii) The system erects certain barriers to entry into the fishery ― newcomers need to 

buy quotas to become active in the fishery. This barrier is similar or the situation 

in the retail business where the competitors control the available sites for setting 

up business. 

(3) It follows from the previous two points that in an ITQ fishery the main instrument for 

exercising market power is to withhold quotas from being fished. This does not mean 

of course that there are no opportunities for other types of monopolistic activity. The 

point is simply that in an ITQ fishery, this is the most important quantity for 

monopolistic manipulation and, moreover, the one that is made available to the 

companies by the establishment of the ITQ system. 

(4) As in any other situation of possible monopolistic behavior, the structure of the 

industry is of major importance. In the SCOQ fishery, the main players appear to be 

(i) quota holders, (ii) fishing companies and (iii) processing companies. Further, 

processors and wholesale distributers may also play a role but that is ignored here. 

Some companies may be involved as one or more of these basic players. The 

combination possibilities are summarized in the following figure 

 

As shown in the figure, there can be various types of companies in this industry. These 

include (i) pure quota-holders, (ii) pure fishermen and (iii) pure processors. But there 

can also be any combination of these three. All in all there are seven possible 

Figure 1 

Main fishery players and their possible configuration 

I

Fishers

II

Processors

III

Quotaholders

IV

VII

VI

V

I

Fishers

II

Processors

III

Quotaholders

IV

VII

VI

V
Part II. Peer Review Report: Ragnar Arnason 

10 

configurations of companies. From the data supplied (MAFMC and NMFS 2010 and 

Mitchell et al. 2011) as well as other information (see Appendix 1), it appears that most 

or all of the possible configurations actually exist in the fishery. 

It can be shown that the possible monopolistic profit maximizing behavior differs in 

general from one configuration of companies to the other.3 It immediately follows that 

the appropriate policy response depends on the type of company in question and, 

consequently, on the overall configuration of companies in the industry. 

A limited attempt to account for some of these aspects of an ITQ fishery in the analysis 

of market power points is presented in an Addendum 2 to this report. This analysis, 

limited as it is, suggests that in an ITQ fishery market power and monopolistic behavior 

on that basis is quite complex. A basic condition for the existence of market power 

derived in Addendum 2 is: 

(1) 

 

1 ( )

1 ( , ) () ( , ) ( , )

i

p EsH i EwH E pH

s







   

This expression gives the relative size of company i (share of fishery or quotas) denoted 

by (i), that is necessary for market power. This may be referred to as the critical size. 

On the right-hand side of the inequality; p/s is the output price to quota price ratio, (i) 

is the cost to revenue ratio of the company and E(s,H), E(w,H), E(p,H) are the respective 

elasticities of quota price, input prices and output price with respect to total harvest 

volume. Needless to say, this expression accounts for market power in the output 

market, input market (monopsony) and the market for quotas. 

From expression (1), we immediately derive a set of important conclusions of general 

validity: 

(1) The determination of the critical company size (before market power is 

gained) is a complicated matter involving a number of variables. 

(2) It immediately follows that an extensive empirical investigation is needed 

before the appropriate size limit is determined. 

(3) A limited analysis considering e.g. only the market power in the output 

market and the elasticity of price w.r.t. harvests is inadequate in the sense 

that it can easily lead to erroneous conclusions. (Note for instance that the 

E(s,H) works in an opposite way to the other elasticities) . 

(4) For seemingly reasonable values of the variables on the right-hand-side of 

(1), the critical relative size of a company (before market power is gained) 

appears to be quite substantial. This is discussed at some length in 

Addendum 2.4

 

3

 This is touched upon but not really explored in Addendum 2. 

4

 In Addendum 2, based on reasonable guestimates of the values of the arguments in (1), was calculated to be 

about 83%. 
Part II. Peer Review Report: Ragnar Arnason 

11 

Controlling market power 

The fundamental economic justification for controlling market power and, generally, 

curtailing monopolistic behavior is to avoid the economic “deadweight loss of monopolies” 

(Varian 1984, Tirole 1989. See Addendum 1). However, it must be realized that there may be 

costs involved. The most obvious ones are: 

(1) Losses in the efficiency of the economic activity in question 

(2) Costs of imposing and enforcing the controls on market power. 

Clearly, for sensible policy, these costs have to be balanced against the potential gains from 

reducing the “deadweight loss” of monopolistic behavior. 

There are many ways to control or counteract market power (Tirole 1989). The method under 

consideration in this study is to set an upper limit on the share of quotas, the so-called 

“excessive share” limit that may be held (or controlled) by any one entity. This corresponds to 

a limitation on company size. 

It should be noted that the “excessive size” limit is an extremely imprecise tool. It may for 

instance hit companies that have not exercised market power or it may be bypassed by coordination between companies. A superior method, although much more complicated to 

implement, is not to restrict company size but to counteract monopolistic behavior directly 

(see Addendum 1 to this report). 

It is important to realize that relatively large companies are often the result of economic 

returns to scale. In other words, relatively large companies are simply economically more 

efficient than smaller companies. This often applies in fisheries, especially comparatively 

small ones as the SCOQ fishery. It follows that limiting the size of companies in such 

fisheries may forgo the social gains that can be had by reaping the economic benefits of 

returns to scale. This is discussed in Addendum 1 to this report, where it is shown that the loss 

in efficiency due to a size limit on companies can easily outweigh the gains from reduced 

market power. 

Imposing and enforcing constraints on monopolistic behavior is inevitably costly. In some 

cases this cost can be very high. Additional costs are borne by companies which, inevitably 

try to find ways to adjust to and even circumvent any binding restrictions. These costs must 

also be set against the potential gains of less monopolistic behavior. 

Responses to the specific items in the TOR 

1. Describe the method or process used by the NMFS Technical Group for determining the 

maximum possible allowable percentage share of quota ownership that will prevent an 

entity from obtaining market power 

The technical group (Mitchell et al. 2011) applies the standard theory of competition 

and market power to the problem. The method is in accordance with the procedure 

suggested in the US government Horizontal Merger Guidelines (anonymous 2010). 

This is to a certain, but limited, extent complemented by an interpretation of some 

aspects attributed to the ITQ system in the SCOQ fishery. 
Part II. Peer Review Report: Ragnar Arnason 

12 

In essence the method applied to the SCOQ fishery specifically is as follows: 

(1) The HH-index is applied to measure concentration in the various sectors of the 

industry. The Technical Group finds a rather low concentration of quota ownership, 

but high concentration of quota use (harvesting) and in processing. 

(2) The HH-index outcomes are compared with the thresholds in the Horizontal 

Merger Guidelines (anonymous 2010) apparently suggesting that sectors exceeding 

these thresholds warrant particular consideration. 

(3) Certain factors that limit market power (e.g. elasticities) are identified and their 

values speculated about. On this basis, apparently, the Technical Group is 

particularly concerned about output markets (monopoly) but pays comparatively 

little attention to input markets (monoposony). 

(4) The industry structure, market attributes and possible monopolistic behavior under 

the ITQ system are discussed in fairly general terms without formal analysis or 

much empirical data. 

(5) On this basis, conclusions are drawn about the need for imposing excessive share 

limits in terms of quota holdings in the fishery 

(6) Finally, on this basis of the above, “reasonable” excessive size limits in the SCOQ 

fishery are proposed without, however, providing good arguments for the 

proposals. 

In addition to this, the Technical Group specifies a more general approach to setting 

excessive share limits in ITQ fisheries in general. This approach and its data and 

research requirements are summarized in Table ES-1. The procedure proposed is in 

broad terms in accordance with the one described for the SCOQ fishery above. It is in 

many respects a sensible and useful one. 

2. Evaluate the strengths and weaknesses of the proposed method developed by the NMFS 

Technical group for determining maximum possible allowable percentage share of 

quota ownership. Review and comment on the data requirements necessary for applying 

the proposed methods. 

B. Strengths 

The approach described in the Technical Group Report (Mitchell et al. 2011) has 

certain important strengths: 

(1) It is based on the standard theory of monopolistic competition. 

(2) It is based on Horizontal Merger Guidelines (HMG), This has the advantage of 

guaranteeing symmetrical treatment with other industries. 

(3) It is fairly clear and systematic. 

(4) Within its own framework, it does not contain any serious errors as far as I 

could see. 
Part II. Peer Review Report: Ragnar Arnason 

13 

B. Weaknesses 

The approach proposed, however, also suffers from significant weaknesses. 

(1) It is fairly superficial in the sense that it does not deal with the issues in 

sufficient depth. This applies in particular to the analysis of the ITQ system 

and its role in the creation and exercise of market power. 

(2) It does not systematically cover all the key economic factors necessary for 

deciding a sensible counter-monopoly policy. In particular, it does not discuss 

(i) the deadweight loss of monopoly, (ii) the loss of economic efficiency that 

may result from counter-monopoly policies and (iii) the cost of imposing, 

enforcing and adjusting to such policies. 

(3) It puts too much emphasis on the HH-index. This, as already discussed, suffers 

from severe limitations. It is also more appropriate to markets for homogenous 

goods which may be the case for quotas but is certainly not the case in the 

SCOQ product market and hardly in the market for landings. 

(4) It contains no formal analysis of the fundamental factors affecting 

monopolistic behavior in the fisheries operating under ITQs. Addendum 2 to 

this report demonstrates that such an analysis in crucial. 

(5) It hardly considers the monopsony problem (distributors vs. processors, 

processors vs. fishers) which may be of major importance in many fisheries 

including the SCOQ one. 

C. Data requirements. 

The needs for data to determine sensible “excessive share” limits are inadequately 

specified in the Technical Group Report. This, presumably, is primarily because the 

analysis needed to specify these data is missing in the report. The analysis in 

Addendum 2 suggests some of the data that are needed. These include (i) various 

price elasticities with respect to total harvest (output price, input prices and quota 

prices), (ii) the ratio of costs to revenues and (iii) the quota price to output price 

ratio. A more complete analysis would undoubtedly add more variables. To calculate 

the elasticities basically requires the estimation of demand and supply curves, which 

is equivalent to estimates of the production (or profit) functions at the various levels 

of the industry. In addition to this, data on the industry structure, level of quota 

holdings in each segment, possible company co-operation and collusion need to be 

obtained and investigated. Since all of these relationships and variables may alter 

over time, these data, moreover, need to be continuously updated. In summary: to set 

the appropriate “excessive size” limit in any given fishery a great amount of 

empirical information and investigation is needed. 

3. Evaluate application of the proposed methods to the Surfclam/Ocean Quahog ITQ 

fishery. If there is disagreement with what the NMFS Technical Group recommended, 

clearly state that and your reason why. 

As already stated above, as a method to determine “excessive share” limits in the SCOQ 

fishery, the method proposed by the Technical Group suffers from serious weaknesses. 
Part II. Peer Review Report: Ragnar Arnason 

14 

(1) It is quite superficial; it does not go into sufficient depth in analyzing this 

particular industry and the role of ITQs in any possible monopolistic behavior by 

the companies. 

(2) It offers little data about the structure of the industry and market operation and 

virtually none about the crucial relationships including the key elasticities. 

(3) It totally ignores important aspects of the situation such as the possible cost of 

monopolistic behavior, the benefits of returns to scale and the cost of imposing and 

operating “excessive size” limits. 

(4) It for the most part ignores the monopsony problem. 

(5) Its recommendation for an “excessive size” limit in this fishery seems rather ‘ad 

hoc’ and apparently not based on a solid theoretical or empirical foundation even 

within their rather limited frame of analysis. 

I disagree with the Technical Group’s recommendation about an excessive share cap in 

the SCOQ fishery. My disagreement is not that the proposed cap is necessarily wrong or 

that the two part cap is inappropriate. My disagreement is that I don’t see any 

reasonable basis in the report or in the other data about this fishery that I have collected 

(see Appendix 1) to set this cap. If anything my own investigations, partly presented in 

Addendum 2 and the first part of this report, suggest that to the extent that a cap should 

be set, it should be substantially higher. 

 My basic conclusion is that there are insufficient data to set any cap at this stage 

and, therefore, especially given the possible costs involved, the prudent course of action 

is to refrain from doing so. 

4. Evaluate whether the approach outlined by the NMFS Technical group is reasonable for 

setting excessive share limits in fisheries managed through catch shares? As part of this 

TOR, comment on any constraints that may hinder application of the methods proposed 

by the NMFS Technical group.

As already discussed above, the approach outlined in the Technical Group Report 

suffers from serious weaknesses of depth and omission. In particular: 

(1) It lacks analysis of the role and effect of ITQs in monopolistic behavior. One 

consequence is that it does not identify the key relationships and variables that 

need to be empirically estimated. Another is that it does not explicitly relate the 

critical share to the empirical facts of the fishery situation. 

(2) It omits dealing with key elements of the monopoly situation including (i) the 

deadweight loss of monopolistic behavior, (ii) the potential efficiency gains from 

exploiting returns to scale and (iii) the cost of implementing and operating 

“excessive share” limits. 

Therefore, in my opinion, the approach as outlined in the Technical Group Report is 

inadequate as a general framework for setting excessive share limits in fisheries in 

general. 
Part II. Peer Review Report: Ragnar Arnason 

15 

5. Provide recommendations for further improvements 

The procedure in the Technical Group Report as outlined e.g. in Table ES-1 and 

discussed in further detail in chapter VI of the report is, in my opinion, quite helpful. 

However, to be usable as guidance for setting excessive share limits in the SCOQ 

fishery and other ITQ fisheries it needs to be complemented by the following. 

(i) A careful general theoretical of the factors that influence monopolistic behavior 

in ITQ fisheries in general. 

(ii) A clear and well-developed prescription as to how to estimate and update the key 

relationships that are indentified by the theoretical study. 

(iii) Additional steps having to do with the assessment of the “deadweight loss” of 

monopolistic behavior, the possible loss of scale efficiencies that might results 

from “excessive share” limits and the costs of implementing and operating a 

system of “excessive share” limits. 

To carry out these additions and improvements requires considerable amounts of high 

level expertise and will inevitably be quite time-consuming and costly. However, given 

the number and economic value of fisheries already and potentially under ITQs in the 

US, the legal requirement to set excessive share limits, and the potential economic costs 

of setting such shares inappropriately, making this investment seems like a sensible way 

to proceed. 

4. Conclusions and recommendations 

What constitutes an excessive share in an ITQ fishery is a complicated issue. Because of the 

complications of ITQs and the dynamic nature of fisheries and ITQ-holdings, it is probably 

substantially more complicated than problems of limited competition in general. 

 The report submitted by the NMFS Technical Group (Mitchell et al. 2011) represent, a 

useful step toward understanding these issues. However, it is just one a step. It is, in my 

opinion, too lacking in the depth of its analysis and too narrow in scope to be acceptable to set 

sensible “excessive share” limits in both the SCOQ fishery and ITQ fisheries in general. More 

detailed reasons for this conclusion are provided in the main text of this report, especially 

chapter 3 and its addenda. 

 It is recommended that the work begun by the Technical Group Report be continued 

by further investigation into the conditions for monopolistic behavior in ITQ fisheries and the 

socially appropriate methods to deal with the problem. As in the Technical Group Report, this 

work should aim at developing theoretically consistent and empirically feasible procedures 

for judging the appropriate excessive share limits in ITQ fisheries in general. 
Part II. Peer Review Report: Ragnar Arnason 

16 

Addendum 1 

Monopolistic behavior: Basic theory 

A general profit function for a company may be written as: 

 ( , ( )) q pq , 

where q represents the production quantity and p(q) the input and output prices faced by this 

company. These may in general depend on the quantity produced by the company with the 

first derivative of p being negative (more generally non-positive) for output prices and 

positive (more generally non-negative) for input prices. The profit function itself should be 

dome shaped in its first argument and monotonically increasing in output prices and 

decreasing in input prices. 

For illustrative purposes, it is useful to write this profit function more explicitly as: 

 ( , ( )) ( ) ( , ( ))  q pq vq q Cqwq   , 

where v refers to output and w to input prices and C(.,.) is the company’s cost function. 

In this context, market power exists if the company is large enough relative to the 

market detect a change in market prices if it alters the quantity, q, or, alternatively, if it can 

alter the price without the quantity dropping to zero.5

 

The socially optimal output level takes prices as exogenous and is defined by the 

condition: 

1  ( , ( )) 0 qpq  , 

where 1 denotes the first derivative of the profit function w.r.t. the first argument. Let us 

refer to the socially optimal output level by q*. 

Firms with market power can affect prices by altering output and therefore do not 

generally take prices as exogenous. Their profit maximizing production level consequently is 

defined by: 

1 2 ( , ( )) ( , ( )) 0 q  q pq q pq p    . 

For both input and output prices the 2nd term would be negative provided pq0.6

 It follows 

from the usual shape of the profit function that the monopoly production level, qmon, say, is 

less than the socially optimal one, i.e., qmonq*. 

 The monopoly situation is often illustrated as in Figure 1. In this figure, the 

monopolist is faced with a downward sloping demand curve, so he perceives pq<0. Therefore, 

rather than setting the quantity at the socially optimal level, qopt, where the marginal profits 

 

5

 In more technical language, the requirement for the existence of market power is that the elasticity of the 

output demand function and the input supply functions, as seen by the firm, be less than infinite. 6

 Note that pq=0 corresponds to perfectly elastic demand and supply functions. 
Part II. Peer Review Report: Ragnar Arnason 

17

are zero and the market price will be popt, he maximizes his profits by setting the quantity at 

qmon, corresponding to a higher price popt. So, under the monopoly, the quantity is less and the 

market clearing price is higher than for the socially optimal behavior. 

 Monopolistic 

behavior results in a 

social loss, a limited 

measure of which is 

often referred to as 

the deadweight loss 

of monopoly (Varian 

1984). 7 This loss is 

illustrated as the 

striped area in 

Figure 1. 

The deadweight loss 

of monopoly 

represents reduced 

economic efficiency 

and is the main 

economic reason for 

combating 

monopolistic 

behavior. However it is important to realize that this deadweight loss is often not very great 

and must, whatever it is, be set against any possible social benefits the monopoly (or 

oligopoly) may confer.

An important possible gain stemming from large companies relative to the total 

market (or industry) is that they may be able to reap returns to scale. This happens when the 

marginal cost function in Figure 1 is falling rather than rising and it corresponds to a situation 

when the marginal profit function is increasing rather than falling (non-concave) over some 

interval. If this is the case, forcing the large company to be reduced in order to curtail 

monopoly power may actually reduce overall social benefits. This is because the deadweight 

losses of monopoly behavior are less the gains from the scale economies realized by the large 

company. 

A possible situation of this kind is illustrated in Figure 2. In this figure, strong 

increasing returns to scale result in a decreasing marginal cost function over a wide range of 

output. The demand function is illustrated as seen by the company. This is kinked at its 100% 

share of the market because the elasticity of demand (the elasticity of the demand curve) 

increases when the company gets competitors. The company maximizes its profits by 

producing at q=1 where it has 100% of the market. The price it receives at this quantity is 

pmon, while the socially optimal price is popt which is much lower and at which price the total 

quantity would be higher. Consequently, this monopoly behavior results in a monopoly 

deadweight loss, i.e. a social loss. 

 

7

 The deadweight loss of monopoly is a limited measure of the actual social loss because it doesn ́t involve 

general equilibrium considerations or consider the dynamic or economic growth impacts of the monopolistic 

behavior. 

Figure 1 

Monopoly behavior 

q, quantity

$,

price

q*

pmon

popt

Marginal 

costs

Marginal 

revenues

Demand

D

qmon q, quantity

$,

price

q*

pmon

popt

Marginal 

costs

Marginal 

revenues

Demand

D

qmon
Part II. Peer Review Report: Ragnar Arnason 

18

Let us now assume that in an attempt to rectify this situation the maximum relative 

size of the company is restricted to some fraction of the total market indicated by qres in 

Figure 2. But at this quantity most of the returns to scale are lost and the actual market price, 

pre,, is higher than under the unrestricted monopoly. It is easy to check that the total consumer 

and producer surplus under the restricted company size situation is less than in the monopoly 

situation. In other words, the deadweight loss of monopoly in the initial situation is less than 

the loss in returns 

to scale in the 

restricted 

situation. 

The situation 

depicted in Figure 

2 is often referred 

to as natural 

monopoly. This is 

because the 

marginal cost 

function is still 

declining at the 

size of the market 

(albeit not at the 

optimal size of the 

market as the 

figure is drawn). 

Since the situation 

is one of natural 

monopoly, it is 

not a good idea to restrict the size of the company. 

Note that this does not suggest that the initial situation of monopoly is ideal. There is a 

significant deadweight loss in that situation as we have seen. The point is that dealing with 

that situation by restricting company size is counterproductive ― it results in more losses than 

gains. A more appropriate policy is to permit the natural monopolist to persist but find ways 

to reduce the price he is charging. 

Figure 2 

Monopoly behavior: Increasing returns to scale 

q, quantity

$

q=1

(100%)

pmon

qres

pres

popt

Marginal 

costs

Marginal 

revenues

Demand

q, quantity

$

q=1

(100%)

pmon

qres

pres

popt

Marginal 

costs

Marginal 

revenues

Demand
Part II. Peer Review Report: Ragnar Arnason 

19 

Addendum 2 

Monopolistic behavior in an ITQ fishery: Analysis 

In an ITQ fishery, the harvest volume (the basic quantity in the fishery) is bounded above by 

the TAC (total allowable catch). If the TAC is binding, there is limited room for monopolistic 

behavior by the fishing firms.8

 However, in ITQ fisheries, fishing firms may withhold quotas 

from fishing, thus controlling the effective TAC. This may, among other things, increase 

output prices (monopoly) and reduce input prices (monopsony) and thus potentially increase 

the firms’ profits. The conditions under which this would be profitable for firms are not 

immediately obvious. 

The following examines the conditions under which this kind of monopolistic (monopoly, 

oligopoly and monopsony) behavior would be profitable for individual firms or a cartel of 

firms. Unfortunately, it turns out that the relationships involved are somewhat complicated 

and some of the results are not totally obvious, even when contemplated ex post. Therefore, I 

have felt it necessary to spell out some of the less obvious aspects of the analysis at 

considerable length. To compensate for this increase in length, an attempt will be made to 

summarize the most pertinent results of the analysis toward the end of this chapter. 

The fishery 

Consider a fishery composed of a number of firms I, I>0. Let the profit function of any firm i

be: 

 ( ; , ;)  p qxi , 

where p refers to input and output prices, q the volume of harvest and x biomass. The profit 

function is assumed to have the usual properties, i.e., to be (i) differentiable in all variables, 

(ii) concave in both q and x, (iii) monotonically increasing in biomass and output prices, (iv) 

having a maximum in q and (v) monotonically decreasing in input prices. 

Note 1: The variable (or vector) p is included in this profit function to allow for possible 

monopolistic behavior. At a later stage this variable will be decomposed into output 

and input prices to allow for monopsony as well as monopoly. 

Note 2: As it is specified the profit functions may differ from one firm to another. 

Fisheries management 

Let this fishery be managed by ITQs. The fisheries manager sets the TAC (hereafter referred 

to as Q) so as to maximize the present value of the sum of consumer and producer surplus 

flowing from the fishery. This is the standard fisheries problem (see e.g. Clark 1975). In the 

ITQ-context the fisheries management problem may be expressed as (Arnason 1990): 

 

8

 Monopolistic behavior ultimately consists of manipulating quantities to affect prices or, equivalently, setting 

the prices and accepting the resulting quantities. 
Part II. Peer Review Report: Ragnar Arnason 

20 

(I) 0 1

 ( , ( ), ; )

I r t

Q i

Max p q i x i e dt    



       

1

. . ( )

 ( ) ( ; , ; )

 ( )

I

i

st x G x Q

qi Q pxi

qi Q



 

 

 



Note 3: The second constraint expresses the individual harvesting response to the 

management control, Q. 

Note 4: Profit maximization taking prices as constant implies the maximization of the sum 

of consumer and producer benefits (Varian 1984). 

Note 5: Setting Q so as to solve problem (I) leads to the socially optimal Q, Q*, say. 

Note 6: Corresponding to Q*, there will be the socially optimal shadow value of biomass, *  , say. 

Note 7: The ITQ system leads to the socially optimal rental price of ITQs (per volume), s*, 

say. 

Note 8: If the TAC is set optimally, Q=Q*, then * *

s   (Arnason 1990).9 

Fishing firm behavior 

Under the ITQ system, firms hold quota-shares (possibly zero). They may alter these quota 

share holdings by trading. They may also buy and sell (rent in or out) annual (seasonal) 

quantity quotas (non-permanent) at the market price s. By withholding quantity quotas from 

fishing they reduce the total catch below the TAC level, which may affect: 

(1) Fishery input and output prices, p.

(2) The rental price of quotas, s.

(3) The evolution of the biomass, x.

(4) The price of quota shares. 

Note 9. The price of quota shares is an asset price and is not going to affect monopolistic 

behavior at any given point of time. Therefore, share quotas and share quota prices 

can apparently be ignored in this analysis. Moreover, since rental prices of quotas 

and quota share prices are functionally dependent on each other by trading arbitrage 

(Arnason 1990), it suffices to consider the former. 

Note 10. The firm can only affect prices by withholding quota. This is because total supply 

of outputs and, therefore, the demand for inputs equals the exogenous TAC less the 

quantity of quota that is withheld from fishing. 

Note 11. Since withholding quota means that the effective TAC is reduced, the rental price of 

quota will generally be positively affected by quota withholding. 

 

9

 This actually follows immediately from socially optimal fishing which implies *  q i( )   all active i and 

actual fishing under ITQs which implies q i( )   s all active i. 
Part II. Peer Review Report: Ragnar Arnason 

21 

Given this, the following summarizes the relevant profit maximization problem for firm i.

10 

(II)   , 0 ( ( ), , ; ) ( ) r t

q

Max p Q q x i s Q q e dt    



      

 st x G x Q . . ( )    

q-0, 0, 

where q and  denote the quota held by the firm and quota withheld from fishing, 

respectively. The functions p Q( )   and s Q( )   represent the input/output price equations 

and quota rental price equations respectively. 

Note 12. q- represents the harvest by the firm. It is convenient to refer this by h(i)q-. 

Note 13. Q- represents total harvest. Let us refer to this as H= Q-. 

A Hamiltonian function for problem (II) may be written as: 

H= ( ( ), , ; ) ( ) ( ( ) ) pQ q xi sQ q Gx Q           , 

where  is the firm’s private evaluation of the shadow value of biomass. 

Necessary conditions for solving (II) include: 

 (II.1) h i( )   s , for active firms. 

 (II.2) () () 0, 0, ( ) 0 p H hi H p H hi H                  p sq p sq    

Expression (II.2) is the key to understanding monopolistic behavior in an ITQ fishery. 

Therefore, in what follows, we will focus on this expression. 

(II.2) is designed for a fishing or an integrated fishing fish processing firm. It does not directly 

cover the case of a quota holder who does neither but just rents out his quota. Without going 

into detail, a corresponding expression for that situation may be expressed as: 

 (II.2’) ( ) 0, 0, ( ( ) ) 0 H h s qs s qs               , 

where q is the quota holdings of the agent. 

Monopolistic behavior 

As stated above, in an ITQ fishery a fishing firm can exert market power by withholding 

quota from fishing. In fact, since this is the only way to alter quantities, this or the threat of 

this may be regarded as the only way to exert market power. For instance, trying to get 

 

10 It may be noticed that there are no quota shares. This is because quta shares only relate to the dynamic asset 

side of the problem and to study the fishery monopoly problem as stated above, it is sufficient to consider an 

ITQ fishery without permanent quota shares. 
Part II. Peer Review Report: Ragnar Arnason 

22 

suppliers to accept a lower input price and buyers a higher output price requires at least a 

credible threat of reduced quantities. Similar arguments apply to cartels of firms. 

Expression (II.2) shows that quota will be withheld only if the marginal benefits of quota 

withholding,   H , evaluated at =0 is positive. This, of course, is highly intuitive. 

Formally we express this as. 

(1) ( )

0

0 p H hi H

H

  p sq





      

 . 

This expression is the fundamental condition for it to be profitable for a fishing firm (or a 

cartel of such firms) to withhold quota from fishing. Careful examination of this equation will 

elicit the conditions under which this can happen. Among other things, (1) involves a number 

of price elasticities as well as the size of the firm relative to the total size of the fishery. 

Therefore, (1) will indicate the relative size of the firm as a function of elasticities at which 

monopolistic behavior could become a possibility. Of course (1) represents a basic theoretical 

relationship. For actual fisheries, it needs to be supplied with the empirical structure of the 

fishery and the numerical estimates of the parameters. 

In order to bring out more clearly the main message of expression (1), it may be useful to seek 

to simplify it. 

S-1. For an output price, ( ) p   h i , [Hotelling’s lemma, Varian (1984)]. 

 For an input price, ( ) p   z i , where z(i) represents the quantity of inputs, 

[Hotelling’s lemma, Varian (1984)]. 

S-2. By (II.1), h i( )   s, provided firm i is active in the fishery. (Note that if this is not the 

case h i( )   s ). 

S-3. Clearly, ( , ) , ( , ) , ( , ) H HH

p w s p E pH w EwH s EsH H HH      , where E(a,b) 

denotes the elasticity of a with respect to b. 

S-4. In (1), ( ) ( ) q qi hi   since the expression is evaluated at =0. 

S-5. In (1), * () () ( ) hi hi i s

H H

            . [The approximately equal sign, “”, is 

shown in Arnason (1990), the last equality sign follows from Note 7 above. 

Adopting simplifications S-1 to S-5 and representing input prices by w and output prices by p

modifies (1) to: 

(2) 

0

() () () () ( , ) ( , ) (, ) 0 H hi p zi w hi s hi E pH EwH s EsH s

 H H HH

  

        

 . 

Now, let the relative size of the firm be defined by ( ) ( ) h i i

H

  . 
Part II. Peer Review Report: Ragnar Arnason 

23 

Note 14. Evaluated at =0, () () ()/ i hi H qi Q   , i.e. the quota holding of company i. 

Inserting this in (2) and simplifying we find: 

(3) 

0

( ) () ( , ) () ( , ) () ( , ) () 0 ( )H zi w s s s i E pH i EwH i EsH i p hi p p p

  



 

           

  . 

The expression ( )

( )

zi w

p h i



 represents the cost-revenue ratio for the firm. Let us denote this ratio 

by (i), i.e.  () () () i zi w p hi   . With that inserted expression (3) becomes 

0

() ( , ) () () ( , ) () ( , ) () 0 H ss s i E pH i i EwH i EsH i

pp p

   





           



Rearranging yields the following boundary expression for the size of the firm, (i)

11: 

(4) 

 

1 ( )

1 ( , ) () ( , ) ( , )

i

p EsH i EwH E pH

s







   

. 

Expression (4) gives the relative size of the company, i.e. (i) for which it is profitable for it 

to withhold quota from fishing. The largest relative size before this becomes profitable is 

given by 

(5) () 1 1 ( , ) () ( , ) ( , )   p i EsH i EwH E pH

s

            

We refer to this (i) as the critical size of the firm. For any size less or equal to the critical 

size, it will not be profitable for the firm to withhold quota from fishing-, even if it has market 

power. For any relative size greater than the critical size, withholding quota will be profitable. 

It is convenient to summarize the content of (5) in the following general expression: 

( ( , ), ( , ), ( , ), , ) crit   E pH EwH EsH s p  . 

So, the critical size of the company depends on (i) the elasticity of output price with respect to 

total harvest, E(p,H), (ii) the elasticity of input price with respect to total harvest, E(w,H). 

(this represents the monopsony aspects of the situation), (iii) the elasticity of the quota rental 

price with respect to total harvest, E(s,H), (iv) the output price/quota price ration, p/s, and (v) 

the cost/revenue ratio, (i). 

From (5) it is easy to see that 

o The (numerically) higher the elasticity of output and input prices with respect to 

harvests the lower is the critical size of the firm. 

 

11 Provided the denominator is positive. 
Part II. Peer Review Report: Ragnar Arnason 

24 

o The higher (numerically) is the elasticity of the quota rental price with respect to 

harvests the larger is the critical size of the firm. 

o The higher the p/s ratio, i.e. the lower the marginal profits of fishing, the lower is the 

critical size of the firm. 

o The higher is the cost to revenue ratio, (i), the lower is the critical firm size. 

All these results seem in accordance with a priori economic reasoning. The result that 

monopoly behavior becomes more profitable with increasing elasticity of price with respect to 

quantity (less elastic supply and demand curves) is well known (Varian 1984, Tirole 1989). 

The result for the quota rental price is somewhat novel. However, recognizing that the cost of 

withholding quota from fishing is equivalent to the quota rental price and that this price 

increases with the quantity of quota withheld, the result is readily understandable. This also 

explains the role of the quota rental price in the output price/quota price ratio. Clearly the 

benefits of quota withholding increase with the price of fish, but they decrease with the rental 

price of quota as discussed. Finally the cost to revenue ratio is merely a weight on the 

elasticity of input price with respect to harvest and therefore has exactly the same effect. 

The critical firm size: Numerical calculations 

Inserting empirical estimates for the arguments (independent variables) in (5) makes it 

possible to calculate the critical firm size. In the absence of such estimates plausible 

guesstimates may be used. Such plausible values are listed in Table 1. Since below we will 

conduct tests of the sensitivity of the critical firm size to these specifications, we refer to them 

as the base levels. 

Table 1 

Assumed base values for the arguments in (5) 

Argument Assumed 

values 

Comments 

E(p,H) -0.5 This is equivalent to the more commonly used 

E(H,p)=-2 

E(w,H) 0.2 This is equivalent to the more commonly used 

E(H,w)=5 

E(s,H) -1 

s/p 0.5 

 0.5 Note that 1- = profits/revenues 

Many empirical studies of the elasticity of fish price to supply suggest low elasticities (highly 

elastic demand curves, see e.g. Asche and Bjondal 1999). Presumably, this is because of the 

ready availability of substitutes. Accordingly a demand elasticity of -2 is assumed. The 

elasticity of input prices in fisheries (labor, capital and materials) is usually very low, 

especially in well developed market economies. This is because of highly elastic supply. The 

supply elasticity of 5 is assumed suggesting that when the use of inputs is doubled the price 

increases by 20%. Little is known about the elasticity of quota price with respect to harvest 

quantity. This reflects the elasticity of the marginal profit function (demand function for 

quotas. Assuming unitary elasticity for this seems reasonable. 
Part II. Peer Review Report: Ragnar Arnason 

25 

At the base levels listed in Table 1, the critical firm size is 0.83, i.e. a firm needs to have 83% 

of the industry before it becomes profitable to withhold quotas. It should be emphasized, 

however, that this outcome depends on the base level assumptions listed in the table. Thus, it 

should be regarded as an example rather than an empirical result. 

Rather than calculating specific values, it may be more informative to examine how the 

critical firm size depends on the arguments of (5). Doing that essentially defines a sub-space 

in the space of relative firm sizes and the functional arguments in (5) where monopolistic 

behavior becomes profitable. Depicting this subspace, however, is not easy. Therefore, in 

what follows we resort to a simpler device. 

First consider the dependence of the critical firm size on each of the three elasticities in 

expression (5) keeping the other arguments in (5) constant. This is done in the following sets 

of diagrams (Figures 1-3). 

The schedule of the critical firm size as a 

function of the elasticity of output price 

with respect to harvest volume is drawn in 

Figure 1. When the size of the firm is 

above the schedule, it is profitable to 

withhold quotas. As indicated in the 

diagram, with E(p,H)=-0.1, the critical firm 

size is above 100%. It is about 83% for 

E(p,H)=-0.5 and 45% for E(p,H)=-1. With 

E(p,H)=-2, the critical firm size drops to 

about 24%. 

The schedule of the critical firm size as a 

function of the elasticity of output price with respect to harvesting quantity is drawn in Figure 

2. Note that this schedule measures the profitability of monopsonistic rather than 

monopolistic behavior. As before the firm 

sizes for which it is profitable to withhold 

quota are located above the schedule. As 

shown in the diagram, when the E(w,H)=0, 

the critical firm size is 100%. So, for this 

elasticity of input price and the base level 

assumptions for the other arguments of (4), 

there is no tendency for monopolistic 

behavior even at 100% firm size. This, of 

course, is a coincidence of the numerical 

specifications. With E(w,H)=0.2, the baselevel assumption, the critical firm size is 

about 83% as before. With E(w,H)=0.5, the 

base-level assumption, the critical firm size 

is about 67%. Finally with E(w,H)=1, the 

base-level assumption, the critical firm size is about 50%. 

The schedule of the critical firm size as a function of the elasticity of quota price with respect 

to harvest is drawn in Figure 3. The interpretation of this schedule is the same as before. Note 

that the higher the numerical value of this elasticity, the larger is the critical firm size. Thus, 

Figure 1 

Critical firm size as a function of elasticity 

of output price w.r.t. total harvest 

2 1 0

0

0.5

1

Elasticity of price w.r.t. harvest

Critical firm size,

Figure 2 

Critical firm size as a function of elasticity 

of input price w.r.t. total harvest 

012 0

0.5

1

Elasticity of input price w.r.t. harvest

Critical firm size,
Part II. Peer Review Report: Ragnar Arnason 

26

for any elasticity less than -1.2, other arguments of (4) at their base levels, the critical firm 

size is above 100%. 

The sensitivity of the critical firm size to 

deviations in the base level assumptions is 

illustrated in Figure 4. In this diagram, the 

base level assumptions of Table 1 are 

altered from -50% to +50% and the 

resulting critical firm size calculated. (Note 

that a -50% reduction in negative 

elasticities results in a numerical increase 

in their values). 

Figure 4 illustrates that the critical firm size is most sensitive to changes in the elasticities of 

output price and quota price to harvests and the s/p ratio. As the elasticity of output price with 

respect to harvests gets greater (becomes more negative) the smaller the critical firm size and 

vice versa for the elasticity of quota price. Compared to these impacts the effect of the input 

price elasticity is smaller. The higher the s/p ratio the larger the critical firm size. This makes 

full sense. One of the costs of withholding quotas is the price of quota. The higher this is 

relative to the output price the greater this cost. 

Conclusions 

The above analysis suggests certain seemingly robust results of a general nature: 

Figure 4 

Sensitivity of the critical firm size to base level assumptions 

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

-50% -25% 0% 25% 50%

EpH EsH EwH s/p

Figure 3 

Critical firm size as a function of elasticity 

of quota price w.r.t. total harvest 

2 1 0 0

0.5

1

Elasticity of quota price w.r.t. harvest

Critical firm size,
Part II. Peer Review Report: Ragnar Arnason 

27 

 Expressions (1), (4) and (5) show that the critical size of firms, i.e. the size before 

monopolistic behavior becomes profitable, is in general a complicated function 

involving several variables and relationships. It follows that a sensible analysis of 

possible monopolistic behavior under ITQ systems must take account of these 

complexities. 

 The expressions for the critical firm size show that even when market power exists (in 

the sense that withdrawal of quota will affect prices), it is often not profitable for the 

firms to exercise this power. It follows that a mere study of market power is 

insufficient to set a sensible limit on fishing firm size. 

 The critical firm size depends on several empirical aspects of the fishery. Many of 

these aspects are highly variable over time. Moreover, it appears that the critical firm 

size may be quite sensitive to the numerical values of these empirical aspects. It 

follows that to set the critical firm size sensibly requires a careful, frequently updated 

empirical studies. 

It is important to realize that the above analysis is subject to considerable limitations. Most 

importantly, it is limited to studying when it would be profitable for fishing firms to exercise 

whatever market power they have. It does not even attempt to answer the broader question as 

to when it would be socially beneficial to impose relative size limitations on fishing firms. 

Clearly, this would only be beneficial when the following apply. 

(1) It is profitable for firms to exercise market power. A necessary (but not sufficient) 

condition for that is that the firms have exceeded the critical size. 

(2) The social costs of larger firms (in terms of deadweight loss) is greater than the 

social benefits (in terms of increased efficiency (i.e., lower average cost of output) 

(3) The costs of enforcing the size constraint is less than the net benefits it generates. 

In addition to this, the expressions for the critical firm size are based on certain crucial 

assumptions. 

 The first crucial assumption is that other firms do not react (by following suit). If they 

do, the individual benefits will be different. Often they will be larger. However, they 

can be less depending on the various elasticities entering (1) and (4) and how they 

change with the level of harvest. The analysis of what will happen if the other firms 

react belongs to the field of game theory and is beyond the scope of this analysis. 

 The second crucial assumption is that the firm can act without risk of negative 

consequences in terms of penalties for monopolistic behavior and negative reputation. 

If these risks exist, the critical firm size before withdrawing quotas becomes truly 

profitable will be larger than described above. 
Part II. Peer Review Report: Ragnar Arnason 

28 

Appendix 1 

Bibliography 

Material provided for review 

Mitchell, G., S. Peterson and R. Willig. 2011. Recommendations for Excessive-Share Limits 

in the Surfclam and Ocean Quahog Fisheries. Compass Lexecon Inc. Boston. 

MAFMC and NMFS. 2010. Overview of Surfclam and Ocean Quahog Fisheries and Quota 

Considerations for 2011,2012 and 2013. Mid-Atlantic Fishery Management 

Council in cooperation with National Marine Fisheries service. Dover, Delaware. 

Presentations during the Peer Review Meeting 

Peterson, S and G. Mitchell. 2011. On Excessive-Share Limits in the Surfclam and Ocean 

Quahog Fisheries. PowerPoint presentation. CIE Peer Review Meeting. Falmouth. 

June 21. 

Other useful background material 

Adelaja A., J. Menzo and B. McCay. 1998. Market Power, Industrial Organization, and 

Tradeable Quotas. Review of Industrial Organization 13: 589–601.

Anderson, L. G. 2008. The Control of Market Power in ITQ Fisherie. Marine Resource 

Economics, 23:25–35. 

Anderson, L.G. 1991. A Note on Market Power in ITQ Fisheries. Journal of Environmental 

Economics and Management 21(3):291–96. 

Anonymous. 2010. Horizontal Merger Guidelines. U.S. Department of Justice and the Federal 

Trade Commission August 19, 2010. 

Arnason, R. 1990. Minimum Information Management in Fisheries. Canadian Journal of 

Economics 23(3):630-53. 

Asche, F. and T. Bjorndal. 1999. Demand Elasticities for Fish: A Review. Globefish Specieal 

series 9. Food and Agriculture Organization. Rome. 

Clark, C.W. 1976. Mathematical Bioeconomics: The Optimal Management of Renewable 

Resources. John Wiley & Sons. 

FAO. 2011. http://www.fao.org/fishery/species/3538/en. Food and Agriculture Organization 

of the United Nations.Rome. 

Hahn, R.W. 1984. Market Power and Transferable Property Rights Quarterly Journal of 

Economics 99:753–65. 

Herfindahl, O. 1950. Concentration in the U.S. Steel Industry. Unpublished doctoral 

dissertation, Columbia University, 1950. 

Hirchman, A.O. 1945. National Power and the Structure of ForeignTrade. Berkeley 1945. 

Hirchman, A.O. 1964. The Paternity of an Index. The American Economic Review, 54:761-2. 
Part II. Peer Review Report: Ragnar Arnason 

29 

Landes, W. and R. Posner. 1981. Market Power in Anti-trust Cases. Harvard Law Review 

94:939-96 

Lerner, A. 1934. The Concept of Monopoly and the Measurement of Monopoly Power. 

Review of Economics and Statistics 1:157–75. 

Marvin, K. A. 1992. Protecting Common Property Resources through the Marketplace: 

Individual Transferable Quotas for Surf Clams and Ocean Quahogs. Vermont Law 

Review 16:1127-68. 

McEvoy, D.M. S. Brandt, N. Lavoie and S. Anders. 2009. The Effects of ITQ Management 

on Fishermen’s Welfare When the Processing Sector Is Imperfectly Competitive. 

Land Economics 85:470-84. 

Mirman, L.J., L.Samuelson and A. Urbano. 1993. Monopoly Experimentation. International 

Economic Review. 34: 549-63. 

Social Sciences Branch. 2009. Excessive Share Issues in the Surfclam and Ocean Quahog 

ITQ Fishery. Report to the Surfclam and Ocean Quahog FMAT. Northeast 

Fisheries Science Center. Woods Hole, MA. 

Tirole, J. 1989. The Theory of Industrial Organization.3rd ed. MIT Press. Cambridge MA. 

Varian, H. 1984. Microeconomic Theory. Second edition. W.W. Norton & Company. New 

York. 
Part II. Peer Review Report: Ragnar Arnason 

30 

Appendix 2 

Statement of Work for Dr. Ragnar Arnason 

External Independent Peer Review by the Center for Independent Experts 

Evaluation of excessive shares study in the 

Mid-Atlantic surfclam and ocean quahog ITQ fishery

Scope of Work and CIE Process: The National Marine Fisheries Service’s (NMFS) Office 

of Science and Technology coordinates and manages a contract providing external expertise 

through the Center for Independent Experts (CIE) to conduct independent peer reviews of 

NMFS scientific projects. The Statement of Work (SoW) described herein was established by 

the NMFS Project Contact and Contracting Officer’s Technical Representative (COTR), and 

reviewed by CIE for compliance with their policy for providing independent expertise that 

can provide impartial and independent peer review without conflicts of interest. CIE 

reviewers are selected by the CIE Steering Committee and CIE Coordination Team to conduct 

the independent peer review of NMFS science in compliance the predetermined Terms of 

Reference (ToRs) of the peer review. Each CIE reviewer is contracted to deliver an 

independent peer review report to be approved by the CIE Steering Committee and the report 

is to be formatted with content requirements as specified in Annex 1. This SoW describes the 

work tasks and deliverables of the CIE reviewer for conducting an independent peer review of 

the following NMFS project. Further information on the CIE process can be obtained from 

www.ciereviews.org. 

Project Description: Recently, the Mid-Atlantic Fishery Management Council has been 

crafting Amendment 15 to the Surfclam and Ocean Quahog Fishery Management Plan, and as 

part of the Amendment, has been attempting to define an "excessive share" threshold for the 

Individual Transferable Quota (ITQ) portion of the fishery. Regarding share accumulation, 

section 303A(c)(5)(D) of the 2006 reauthorized Magnuson-Stevens Act states that ITQ 

privilege programs should ensure that limited access privilege holders do not acquire an 

excessive share of the total limited access privileges in the program. In addition, National 

Standard 4 of the Magnuson Act (16 U.S.C. 1851(a)(4)) requires that fishing privilege 

allocations be carried out so that "no particular individual, corporation, or other entity 

acquires an excessive share of such privileges." During the course of the Council’s 

deliberations on the market power excessive share issue, it was decided that additional 

expertise was needed to examine the economic rationale behind the excessive share 

determination, and to recommend an excessive share level, if needed. In order to provide this 

expertise, a Technical Group of Experts (not the CIE) is being assembled to give advice on 

the appropriate excessive share threshold for the surfclam and ocean quahog ITQ system. This 

Technical Group will assess available models for evaluating the presence of market power, 

and make recommendations with regard to their appropriateness for setting excessive catch 

share limits. 

The work being performed by this Technical Group could be controversial. It will establish 

methods for determining excessive shares which might be applied in other fisheries (besides 

surfclams and ocean quahogs). With the movement by NMFS to catch share systems, 

determining what constitutes an excessive share and whether limits need to be put in place is 

extremely important because excessive share may lead to market power. Market power can 

lead to the ability to influence price in either the final product market or for factors of 
Part II. Peer Review Report: Ragnar Arnason 

31 

production (i.e. the fish resource). Examination of market share has never been formally 

investigated in this fishery. Thus the study by the Technical Group will be innovative and 

significant. 

After the Technical Group has delivered its recommendations, a peer review (by the CIE) 

needs to take place to either endorse or reject the findings from the Technical Group. This 

two-step process was agreed to by the Northeast Fisheries Science Center (NEFSC) and the 

Mid-Atlantic Fishery Management Council (MAFMC). 

The Terms of Reference (ToRs) of the peer review are attached in Annex 2. The tentative 

agenda of the panel review meeting is attached in Annex 3.

Requirements for CIE Reviewers: Three CIE reviewers shall conduct an impartial and 

independent peer review in accordance with the SoW and ToRs herein. CIE reviewers shall 

have working knowledge and recent experience in the application of economics, with specific 

expertise in industrial organization. The reviewers should have theoretical and empirical 

expertise in the economics of market structure/conduct/performance, particularly 

monopoly/oligopsony, antitrust, firm strategy, and government regulation. Experience 

conducting studies using econometric models and/or index-based assessments of market 

concentration and market power would be useful. Experience with markets operating under 

government permits such as production permit or marketing orders in agriculture, bandwidth 

for TV and radio, and tradable permit systems like ITQ’s in fisheries would be desirable. 

Empirical studies of market structure in renewable resource industries would be desirable as 

would an understanding of the statutory context for antitrust regulation. Each CIE reviewer’s 

duties shall not exceed a maximum of 14 days to complete all work tasks of the peer review 

described herein. 

Not covered by the CIE, the CIE chair’s duties should not exceed a maximum of 14 days (i.e., 

several days prior to the meeting for document review; the CIE panel meeting in Woods Hole; 

several days following the open meeting for SARC Summary Report preparation). 

Location of Peer Review: Each CIE reviewer shall conduct an independent peer review 

during the panel review meeting scheduled in Woods Hole, Massachusetts during 21-23 June 

2011. 

Statement of Tasks: Each CIE reviewer shall complete the following tasks in accordance 

with the SoW and Schedule of Milestones and Deliverables herein. 

1. Prior to the Peer Review Meeting: 

Upon completion of the CIE reviewer selection by the CIE Steering Committee, the CIE shall 

provide the CIE reviewer information (full name, title, affiliation, country, address, email, 

FAX) to the COTR, who forwards this information to the NMFS Project Contact no later the 

date specified in the Schedule of Milestones and Deliverables. The CIE is responsible for 

providing the SoW and ToRs to the CIE reviewers. The NMFS Project Contact is responsible 

for providing the CIE reviewers with the background documents, reports, foreign national 

security clearance, and other information concerning pertinent meeting arrangements. The 

NMFS Project Contact is also responsible for providing the Chair (see below) a copy of the 

SoW, background documents and final report in advance of the panel review meeting. Any 
Part II. Peer Review Report: Ragnar Arnason 

32 

changes to the SoW or ToRs must be made through the COTR prior to the commencement of 

the peer review. 

Foreign National Security Clearance: When CIE reviewers participate during a panel review 

meeting at a government facility, the NMFS Project Contact is responsible for obtaining the 

Foreign National Security Clearance approval for CIE reviewers who are non-US citizens. 

For this reason, the CIE reviewers shall provide requested information (e.g., first and last 

name, contact information, gender, birth date, passport number, country of passport, travel 

dates, country of citizenship, country of current residence, home country, and FAX number) 

to the NMFS Project Contact for the purpose of their security clearance, and this information 

shall be submitted at least 30 days before the peer review in accordance with the NOAA 

Deemed Export Technology Control Program NAO 207-12 regulations available at the 

Deemed Exports NAO website: http://deemedexports.noaa.gov/sponsor.html). 

Pre-review Background Documents: Approximately two weeks before the peer review, the 

NMFS Project Contact will send (by electronic mail or make available at an FTP site) to the 

CIE reviewers the necessary background information and reports for the peer review. In the 

case where the documents need to be mailed, the NMFS Project Contact will consult with the 

CIE Lead Coordinator on where to send documents. CIE reviewers are responsible only for 

the pre-review documents that are delivered to the reviewer in accordance to the SoW 

scheduled deadlines specified herein. The CIE reviewers shall read all documents in 

preparation for the peer review. 

2. During the Open Meeting 

Panel Review Meeting: Each CIE reviewer shall conduct the independent peer review in 

accordance with the SoW and ToRs, and shall not serve in any other role unless specified 

herein. Modifications to the SoW and ToRs can not be made during the peer review, and 

any SoW or ToRs modifications prior to the peer review shall be approved by the 

COTR and CIE Lead Coordinator. Each CIE reviewer shall actively participate in a 

professional and respectful manner as a member of the meeting review panel, and their peer 

review tasks shall be focused on the ToRs as specified herein. The NMFS Project Contact is 

responsible for any facility arrangements (e.g., conference room for panel review meetings or 

teleconference arrangements). The NMFS Project Contact is responsible for ensuring that the 

Chair understands the contractual role of the CIE reviewers as specified herein. The CIE 

Lead Coordinator can contact the Project Contact to confirm any peer review arrangements, 

including the meeting facility arrangements. 

Review Meeting Chair

A member of the Mid-Atlantic Management Council Scientific and Statistical Committee will 

serve as Chairperson. The role of the Chair is to facilitate the meeting, which includes 

coordination of presentations and discussions, and making sure all Terms of Reference are 

reviewed. Additionally, the Chair shall prepare the summary report from the meeting. During 

the meeting the Chair can ask questions or make statements to clarify discussions, and he can 

move the discussion along to ensure that the CIE reviewers address all of the TORs. 

CIE Reviewers
Part II. Peer Review Report: Ragnar Arnason 

33 

Each CIE reviewer shall participate as a peer reviewer in a panel discussion centered on a 

report furnished to NMFS by the Technical Group of Experts regarding excessive shares in 

the surfclam and ocean quahog fishery. Reviewers are to determine whether the findings of 

the Technical Group are valid given the Terms of Reference provided to the expert panel. If 

reviewers consider the recommendations of the expert panel to be inappropriate, the reviewers 

should recommend an alternative. 

During the question and answer period, a representative of the NMFS expert panel will be 

available to answer questions about the report. The CIE members can provide feedback to the 

expert panel member at that time. 

Other Panel Members 

A representative from the Mid-Atlantic Fishery Management Council staff, and the Northeast 

Fisheries Science Center Social Sciences Branch will be available during the meeting to 

provide any additional information requested by the CIE reviewers. Other panel members 

may assist the Chair prepare the summary report, if requested. 

3. After the Open Meeting 

 

Contract Deliverables - Independent CIE Peer Review Reports: Each CIE reviewer shall 

complete an independent peer review report in accordance with the SoW. Each CIE reviewer 

shall complete the independent peer review according to required format and content as 

described in Annex 1. Each CIE reviewer shall complete the independent peer review 

addressing each ToR as described in Annex 2. 

Other Tasks – Contribution to Summary Report: The Chair from the SSC and CIE reviewers 

will prepare the Peer Review Summary Report. Each CIE reviewer will discuss whether they 

hold similar views on each Term of Reference and whether their opinions can be summarized 

into a single conclusion for all or only for some of the Terms of Reference. For terms where a 

similar view can be reached, the Summary Report will contain a summary of such opinions. 

In cases where multiple and/or differing views exist on a given Term of Reference, the Report 

will note that there is no agreement and will specify - in a summary manner – what the 

different opinions are and the reason(s) for the difference in opinions. 

The Chair’s objective during this Summary Report development process will be to identify or 

facilitate the finding of an agreement rather than forcing the panel to reach an agreement. The 

Chair will take the lead in editing and completing this report. The Report (please see Annex 1 

for information on contents) should address whether each Term of Reference was completed 

successfully. For each Term of Reference, this report should state why that Term of Reference 

was or was not completed successfully. 

Specific Tasks for CIE Reviewers: The following chronological list of tasks shall be 

completed by each CIE reviewer in a timely manner as specified in the Schedule of 

Milestones and Deliverables. 

1) Conduct necessary pre-review preparations, including the review of background 

material and reports provided by the NMFS Project Contact in advance of the peer 

review. 
Part II. Peer Review Report: Ragnar Arnason 

34 

2) Participate during the panel review meeting at the Northeast Fisheries Science Center, 

Woods Hole, MA laboratory during 21-23 June, 2011 as specified herein, and conduct 

an independent peer review in accordance with the ToRs (Annex 2). 

3) No later than 7 July, 2011, each CIE reviewer shall submit an independent peer review 

report addressed to the “Center for Independent Experts”, and the report should be 

sent to Mr. Manoj Shivlani, CIE Lead Coordinator, via email to 

shivlanim@bellsouth.net, and Dr. David Sampson, CIE Regional Coordinator, via 

email to david.sampson@oregonstate.edu. Each CIE report shall be written using the 

format and content requirements specified in Annex 1, and address each ToR in 

Annex 2. 

Schedule of Milestones and Deliverables: CIE shall complete the tasks and deliverables 

described in this SoW in accordance with the following schedule. 

17 May 2011 CIE sends reviewer contact information to the COTR, who then 

sends this to the NMFS Project Contact 

7 June 2011 NMFS Project Contact sends the CIE Reviewers the pre-review 

documents 

 21-23 June 2011 Each reviewer participates and conducts an independent peer review 

during the panel review meeting 

 7 July 2011 CIE reviewers submit draft CIE independent peer review reports to 

the CIE Lead Coordinator and CIE Regional Coordinator 

14 July 2001 Draft of Summary Report, reviewed by all CIE reviewers, due to 

panel Chair * 

21 July 2001 Panel Chair send final Summary Report, approved by CIE reviewers, 

to NEFSC contact 

21 July 2011 CIE submits CIE reports to the COTR 

28 July 2011 The COTR distributes the final CIE reports to the NMFS Project 

Contact and regional Center Director 

*The Summary report will not be submitted, reviewed, or approved by the CIE 

Modifications to the Statement of Work: Requests to modify this SoW must be approved 

by the Contracting Officer at least 15 working days prior to making any permanent 

substitutions. The Contracting Officer will notify the COTR within 10 working days after 

receipt of all required information of the decision on substitutions. The COTR can approve 

changes to the milestone dates, list of pre-review documents, and ToRs within the SoW as 

long as the role and ability of the CIE reviewers to complete the deliverable in accordance 

with the SoW is not adversely impacted. The SoW and ToRs shall not be changed once the 

peer review has begun.

 

Acceptance of Deliverables: Upon review and acceptance of the CIE independent peer 

review reports by the CIE Lead Coordinator, Regional Coordinator, and Steering Committee, 
Part II. Peer Review Report: Ragnar Arnason 

35 

these reports shall be sent to the COTR for final approval as contract deliverables based on 

compliance with the SoW and ToRs. As specified in the Schedule of Milestones and 

Deliverables, the CIE shall send via e-mail the contract deliverables (CIE independent peer 

review reports) to the COTR (William Michaels, via William.Michaels@noaa.gov). 

Applicable Performance Standards: The contract is successfully completed when the 

COTR provides final approval of the contract deliverables. The acceptance of the contract 

deliverables shall be based on three performance standards: 

(1) each CIE report shall completed with the format and content in accordance with Annex 1, 

(2) each CIE report shall address each ToR as specified in Annex 2, 

(3) the CIE reports shall be delivered in a timely manner as specified in the schedule of 

milestones and deliverables. 

Distribution of Approved Deliverables: Upon acceptance by the COTR, the CIE Lead 

Coordinator shall send via e-mail the final CIE reports in *.PDF format to the COTR. The 

COTR will distribute the CIE reports to the NMFS Project Contact and Center Director. 

Support Personnel: 

William Michaels, Program Manager, COTR) 

NMFS Office of Science and Technology 

1315 East West Hwy, SSMC3, F/ST4, Silver Spring, MD 20910 

William.Michaels@noaa.gov Phone: 301-713-2363 ext 136 

Manoj Shivlani, CIE Lead Coordinator 

Northern Taiga Ventures, Inc. 

10600 SW 131st Court, Miami, FL 33186 

shivlanim@bellsouth.net Phone: 305-383-4229 

Roger W. Peretti, Executive Vice President 

Northern Taiga Ventures, Inc. (NTVI) 

22375 Broderick Drive, Suite 215, Sterling, VA 20166 

RPerretti@ntvifederal.com Phone: 571-223-7717 

Key Personnel: 

NMFS Project Contact: 

John B. Walden 

Northeast Fisheries Science Center 

166 Water Street, Woods Hole, MA 02536 

John.Walden@noaa.gov 

Phone: 508-495-2355 
Part II. Peer Review Report: Ragnar Arnason 

36 

Annex 1: Format and Contents of CIE Independent Peer Review Report 

1. The CIE independent report shall be prefaced with an Executive Summary providing a 

concise summary of the findings and recommendations in accordance with the ToRs. 

2. The main body of the reviewer report shall consist of a Background, Description of the 

Individual Reviewer’s Role in the Review Activities, Summary of Findings for each ToR in 

which the weaknesses and strengths are described, and Conclusions and Recommendations 

in accordance with the ToRs. 

a. Reviewers should describe in their own words the review activities completed during the 

panel review meeting, including providing a brief summary of findings, of the science, 

conclusions, and recommendations. 

b. Reviewers should discuss their independent views on each ToR even if these were 

consistent with those of other panelists, and especially where there were divergent views. 

c. Reviewers should elaborate on any points raised in the Summary Report that they feel 

might require further clarification. 

d. Reviewers shall provide a critique of the NMFS review process, including suggestions 

for improvements of both process and products. 

e. The CIE independent report shall be a stand-alone document for others to understand the 

weaknesses and strengths of the science reviewed, regardless of whether or not they read 

the summary report. The CIE independent report shall be an independent peer review of 

each ToRs, and shall not simply repeat the contents of the summary report. 

3. The reviewer report shall include the following appendices: 

Appendix 1: Bibliography of materials provided for review 

Appendix 2: A copy of the CIE Statement of Work 

Appendix 3: Panel Membership or other pertinent information from the panel review 

meeting. 

 
Part II. Peer Review Report: Ragnar Arnason 

37 

Annex 2: Terms of Reference for the Peer Review 

Evaluation of excessive shares study in the 

Mid-Atlantic surfclam and ocean quahog ITQ fishery

The peer review shall be conducted based on the following Terms of Reference (ToRs): 

1. Describe the method or process used by the NMFS Technical Group for determining the 

maximum possible allowable percentage share of quota ownership that will prevent an entity 

from obtaining market power. 

2. Evaluate the strengths and weaknesses of the proposed method developed by the NMFS 

Technical group for determining maximum possible allowable percentage share of quota 

ownership. Review and comment on the data requirements necessary for applying the 

proposed methods. 

3. Evaluate application of the proposed methods to the Surfclam/Ocean Quahog ITQ fishery. 

If there is disagreement with what the NMFS Technical Group recommended, clearly state 

that and your reason why. 

4. Evaluate whether the approach outlined by the NMFS Technical group is reasonable for 

setting excessive share limits in fisheries managed through catch shares? As part of this TOR, 

comment on any constraints that may hinder application of the methods proposed by the 

NMFS Technical group. 

5. Provide any recommendations for further improvement 
Part II. Peer Review Report: Ragnar Arnason 

38 

Annex 3: Tentative Agenda 

Evaluation of excessive shares study in the 

Mid-Atlantic surfclam and ocean quahog ITQ fishery

Falmouth and Woods Hole, Massachusetts during 21-23 June 2011 

Tuesday, June 21. Holiday Inn, Lighthouse Room, Jones Road, Falmouth, MA 

 9:00-9:15 AM 

 Opening 

 Welcome 

 Introduction SSC Chair 

 Agenda 

 Conduct of Meeting 

9:15 – 9:30 Background and Need for Expert Panel Report – Lee Anderson 

9:30-11 Report of the NMFS Expert Panel - NMFS Expert Panel Rep. 

11-11:15 Break 

11:15 -Noon Review Terms of Reference – CIE Panel 

Noon – 1:15 Lunch 

1:15 – 3:00 CIE Panel Discussion – Terms of Reference #1. 

3:00-3:15 Break 

3:15-4:00 Public Comments 

4:00-4:45 CIE Panel Discussion – Terms of Reference #2 

4:45-5:00 Questions for following day 

Wednesday, June 22. Holiday Inn, Lighthouse Room, Jones Road, Falmouth, MA 

9:00-9:30 Review any outstanding questions from previous day 

9:30-10:30 CIE Panel Discussion – Terms of Reference #3 

10:30-10:45 Break 

10:45-Noon CIE Panel Discussion – Terms of Reference #4 

Noon-1:30 Lunch 

1:30 – 3:00 CIE Panel Discussion – Terms of Reference #5 

3:00-3:15 Break 

3:15-5:00 CIE Panel Discussion – Outstanding Issues 

Thursday June 23 Location: Clark Conference Room, Northeast Fisheries Science Center. 

9:00 – 5:00 Report writing (Meeting Closed to Public) 
Part II. Peer Review Report: Ragnar Arnason 

39 

Appendix 3 

Peer Reviewer Panel 

Ani Katchova. Assistant Professor, Department of Agricultural Economics, University of 

Kentucky akatchova@uky.edu

Rigeberto Lopez. Professor, Agricultural and Resource Economics, University of 

Connecticut rigoberto.lopez@uconn.edu

Ragnar Arnason. Professor, Department of Economics, University of Iceland. ragnara@hi.is

Chair 

James E. Wilen. Professor, Agricultural and Resource Economics, University of California 

Davis. wilen@primal.ucdavis.edu
Part III: Peer Review Report 

by 

Ani Katchova 
Part III. Peer Review Report: Ani Katchova 

CIE Independent Peer Review Report 

On 

Recommendations for Excessive-Share Limits in the Surfclam and Ocean Quahog 

Fisheries, prepared by Glenn Mitchell, Steven Peterson, and Robert Willig 

By 

Ani Katchova 

Assistant Professor 

Department of Agricultural Economics 

 University of Kentucky 

E-mail: akatchova@uky.edu 

July 1, 2011 

 
Part III. Peer Review Report: Ani Katchova 

2 

Executive Summary 

A National Marines Fisheries Service Technical Group of Experts was assembled to give advice 

on the appropriate excessive share threshold for the Surfclam and Ocean Quahog (SCOQ) ITQ 

system. The report prepared by Mitchell, Peterson, and Willig provides background information 

on the SCOQ industry and recommendations on 1) the rule or process that can be used to set an 

excessive-share limit in terms of the maximum percentage of quota that can be owned or 

otherwise controlled by a single individual or entity; and 2) the application of this rule or process 

using available data to determine an appropriate excessive-share limit in the SCOQ ITQ system. 

The NMFS technical group argues that the evidence they analyzed does not support a conclusion 

that market power is currently being exercised through withholding of quota in the SCOQ 

fisheries. Using the Herfindahl-Hirschman index which is recommended for use in the 

Horizontal Merger Guidelines, it is found that the levels of concentration vary in the different 

sectors of the SCOQ industry: quota ownership, harvesting, and processing. The ownership of 

quota in the SCOQ fisheries is unconcentrated, but the use of quota is highly concentrated, both 

for harvesting and processing. 

The excessive-share proposal is laid out as a series of seven steps. They consider the HHI index 

using non-SCOQ clams and fringe holders, and the rule of three-firms to ensure adequate 

competition. At the end, they propose a two-part cap at 30% for long-term quota holdings and 

40-60% for short-term quota holdings. They also recommend that there be a mechanism for 

revealing information on quota prices, such an open auction process.

The proposed method developed by the NMFS technical group has several key strengths and 

weaknesses. One of the major strengths of the proposed method is that it follows the Horizontal 

Merger Guidelines for determining concentration and market power. Using the HHI for 

measuring market concentration strengthens the study as it makes the methods and results 

comparable across industries. The application of this method presents a problem if there is an 

uncertainty about the market size (imports, other relevant markets) due to lack of available data. 

An additional rule was suggested that at least three firms must be present to ensure sufficient 

competition. There is support in the literature for this rule, although it is somewhat arbitrary how 

this three-firm rule was introduced to their study. 

The proposed excessive share cap percentages include a rather wide range (i.e. 40-60%) of 

acceptable excessive-share caps that a regulator will have to determine which specific number to 

use and enforce as an excessive-share cap. The cost associated with the implementation of an 

excessive-share cap as well as the cost of monitoring and enforcement will likely be substantial, 

which will also need to be explored. 

The boundaries of relevant markets are set based on the ability of consumers to switch products 

when faced with a small but relevant price increase (the hypothetical monopolist test). In 

absence of reliable quantitative data, there needs to be an in-depth understanding of the industry, 
Part III. Peer Review Report: Ani Katchova 

3 

major players, products, etc. Therefore, in order to apply an excessive-share cap correctly over 

time, the cap needs to be dynamically updated based on new information about substitutability 

and structural changes in the industry. 

The analysis of the NMFS technical group is mostly focused on the output markets as opposed to 

the input markets. Since this approach is applied to a vertically-integrated industry with a small 

number of processors and vessels predominantly controlled by the processors, the exercise of 

monopsony power is of primary interest. 

One of the major challenges for this approach is the instrument used to address the potential 

exercise of market power. The only instrument considered in their study is setting excessiveshare cap for the ITQ holdings. More transparency and reliable data are needed for the 

ownership, transfers, and contracts for quotas. 

The approach outlined by the NMFS technical group is generally applicable to other fisheries 

managed through catch shares. The 7 steps as described by the NMFS technical group are 

relevant for the establishment of ITQs with excessive-share cap in other fisheries, but it may not 

apply to fisheries without ITQs. It is necessary to analyze all available information and data 

about the new fishery to assess the similarity and differences with the SCOQ industry before 

applying this approach. Similar data constraints may be present for other industries as well. 

The NMFS technical group study provides a good starting point in considering an excessiveshare cap in the SCOQ clam industry. In my opinion, because of data limitations there is still not 

sufficient understanding of the market structure for this industry and the recommendations apply 

in a general sense. I would recommend several actions: 

1. An open auction or other mechanisms to reveal quota prices and make the market for 

quota transfers liquid and transparent needs to be established. 

2. More information can be collected from industry participants regarding market shares, 

major buyers of processed output, prices paid and received for claim inputs and outputs, 

etc. 

3. Merger guidelines focus on market shares and price considerations but not on production 

cost efficiencies. Further studies can be done on the cost efficiencies of operating as 

large processors. 

4. Further studies are needed on the monopsonization of the input markets. 

Monopsonization of the input market is a larger concern than monopolization of the 

output market. 

5. The study only considered policies regarding excessive share of the ownership quota. 

Other instruments beyond excessive share cap should be investigated. 

6. Monitoring and enforcement of the excessive share cap will need to be studied and 

implemented. 
Part III. Peer Review Report: Ani Katchova 

4 

I. Background 

A. Project Description 

The Mid-Atlantic Fishery Management Council has been crafting Amendment 15 to the 

Surfclam and Ocean Quahog (SCOQ) Fishery Management Plan, and as part of the Amendment, 

has been attempting to define an "excessive share" threshold for the Individual Transferable 

Quota (ITQ) portion of the fishery. Regarding share accumulation, the 2006 reauthorized 

Magnuson-Stevens Act states that ITQ privilege programs should ensure that limited access 

privilege holders do not acquire an excessive share of the total limited access privileges in the 

program. In addition, National Standard 4 of the Magnuson Act requires that fishing privilege 

allocations be carried out so that "no particular individual, corporation, or other entity acquires 

an excessive share of such privileges." 

In order to provide this expertise, a NMFS Technical Group of Experts was assembled to give 

advice on the appropriate excessive share threshold for the Surfclam and Ocean Quahog ITQ 

system. This Technical Group assessed available models for evaluating the presence of market 

power, and made recommendations with regard to their appropriateness for setting excessive 

catch share limits. 

After the Technical Group delivered its recommendations, a peer review (by the CIE) was 

conducted to either endorse or reject the findings from the Technical Group. This two-step 

process was agreed to by the Northeast Fisheries Science Center (NEFSC) and the Mid-Atlantic 

Fishery Management Council (MAFMC). 

B. Brief Summary of Findings, of the Science, Conclusions and Recommendations of 

the Excessive-Share report by Mitchell, Peterson, and Willig. 

The report prepared by Mitchell, Peterson, and Willig provides background information on the 

SCOQ industry as well as recommendations on 1) the rule or process that can be used to set an 

excessive-share limit in terms of the maximum percentage of quota that can be owned or 

otherwise controlled by a single individual or entity; and 2) the application of this rule or process 

using available data to determine an appropriate excessive-share limit in the SCOQ ITQ system. 

In 1990, the SCOQ fisheries adopted an ITQ system under which the fishery regulator sets a total 

allowable catch (“TAC”) separately for each of the two species to prevent over-exploitation of 

the resource, and allocated ITQs permitting harvest of a share of the TAC. ITQs are transferable, 

which allows shifts in production to industry participants that may be more efficient. 

Currently, there are eight processing firms that purchase catch from the SCOQ fisheries. Some 

processors have developed quota ownership through either the acquisition of vessels and 
Part III. Peer Review Report: Ani Katchova 

5 

accompanying quota or the acquisition of quota directly, and it is common for processors to enter 

into long-term contracts to lease quota from quota holders. Virtually all clams are sold under 

contract between processors and harvesters, or are harvested by processor-affiliated vessels. 

The Mitchell, Peterson, and Willig report addresses the question of whether market power can be 

exercised through the ownership and withholding of quota in the SCOQ fisheries. The exercise 

of market power in an ITQ-regulated fishery can occur when a quota owner has the ability and 

the incentive to affect the price of the regulated harvest or of the quota through its use or 

suppression of use of quota. 

The authors argue that the evidence they analyzed does not support a conclusion that market 

power is currently being exercised through withholding of quota in the SCOQ fisheries. In 

particular, processors report that once it is clear that there will be excess quota available in a 

season (well before the end of the season, leaving sufficient opportunity to continue to harvest if 

harvesters and processors deem there to be sufficient demand), the price of quota is very low. 

There are a number of factors that may constrain the exercise of market power throughout the 

various levels of activity in the SCOQ fisheries, including cases where the demand were highly 

elastic and substitutes were amply available. 

Using the Herfindahl-Hirschman index which is recommended for use in the Horizontal Merger 

Guidelines, it is found that the levels of concentration vary in the different sectors of the SCOQ 

industry: quota ownership, harvesting, and processing. The ownership of quota in the SCOQ 

fisheries is unconcentrated, but the use of quota is highly concentrated, both for harvesting and 

processing. 

The excessive-share proposal is laid out as a series of seven steps. They consider the HHI index 

using non-SCOQ clams and fringe holders, and the rule of three-firms to ensure adequate 

competition. At the end, they propose a two-part cap at 30% for long-term quota holdings and 

40-60% for short-term quota holdings. 

They also recommend that there be a mechanism for revealing information on quota prices, such 

as through an open auction process. 

II. Description of the Individual Reviewer’s Role in the Review Activities 

This report was prepared and written by Dr. Ani Katchova. Before the panel meeting, I carefully 

read the “Overview of the Surfclam and Ocean Quahog Fisheries and Quota Considerations for 

2011, 2012, and 2013” prepared by the Mid-Atlantic Fishery Management Council with the 

cooperation of National Marine Fisheries Service and the “Recommendations for ExcessiveShare Limits in the Surfclam and Ocean Quahog Industries” prepared by Mitchell, Peterson, and 

Willig. Additional preparation included reading relevant publications on competition, market 
Part III. Peer Review Report: Ani Katchova 

6 

power, and fisheries. During the panel meeting in Woods Hole, Massachusetts, June 21-23, 

2011, I listened to the information presented and asked questions to clarify my understanding of 

the report and the fisheries industry. Following the review panel meeting, I prepared this report, 

according to the Terms of Reference and Statement of Work. 

III. Summary of Findings for Each Term of Reference with Description of Strengths 

and Weaknesses 

In this section, the five terms of reference are listed with a summary of findings for each of them. 

In the discussion, strengths and weaknesses are also discussed. 

1. Describe the method or process used by the NMFS Technical Group for 

determining the maximum possible allowable percentage share of quota ownership 

that will prevent an entity from obtaining market power. 

The NMFS Technical Group utilized a 7-step process to determine the maximum possible 

allowable percentage share of quota ownership that will prevent an entity from obtaining market 

power. The following steps were proposed and implemented: step 1, determine what constitutes 

relevant quota ownership and control; step 2, assess the relevant markets, including 

substitutability of products and product heterogeneity, the relative bargaining power of buyers 

and sellers, and other competitive information; step 3, establish whether a threshold condition 

requiring no calculation of cap applies; step 4; establish the appropriate concentration thresholds 

using the Horizontal Merger Guidelines (to prevent the HHI from exceeding 2500 or have at 

least three processing firms); step 5, determine the relationship between the excessive share cap 

and market concentration, using the HHI index and information on substitute products and the 

size of competitive fringe; step 6, identify regulatory and practical constraints with regards to 

setting a fixed cap or two-part cap; and step 7, set the excessive-share cap with fixed cap at 30-

40% or two-part cap of 30% for long-term and 40-60% for short-term. 

2. Evaluate the strengths and weaknesses of the proposed method developed by the 

NMFS technical group for determining maximum possible allowable percentage 

share of quota ownership. Review and comment on the data requirements 

necessary for applying the proposed methods. 

The proposed method developed by the NMFS technical group has several key strengths and 

weaknesses. 

One of the major strengths of the proposed method is that it follows the Horizontal Merger 

Guidelines for determining concentration and market power. The standard measure of 

concentration is the Herfindahl-Hirschman Index (HHI), where markets with an HHI below 1500 

are considered unconcentrated; between 1500 and 2500, moderately concentrated; and above 

2500, highly concentrated. Using the HHI for measuring market concentration strengthens the 
Part III. Peer Review Report: Ani Katchova 

7 

study as it makes the methods and results comparable across industries. The NMFS technical 

group has appropriately modified the application of the HHI index to consider competition from 

non-SCOQ clams as well as the aggregate share held by fringe holders. To properly calculate 

HHI, the necessary data requirements include the market size of the relevant markets (imports, 

non-SCOQ clams, etc.) and the market shares of the players (for quota ownership, harvesting, 

and processing). Therefore, the application of this method presents a problem if there is an 

uncertainty about the market size (imports, state fisheries, other relevant markets) due to lack of 

available data. An additional rule was suggested that at least 3 firms must be present to ensure 

sufficient competition. There is support in the literature for this rule (Kwoka; Bresnahan and 

Reiss), although it is somewhat arbitrary how this three-firm rule was introduced to this study. 

The NMFS technical group argues that if the excessive share cap is set at 40% that will ensure 

that at least three firms are present in the industry. It is not clear which rule should be followed 

(HHI index below 2500 or the three-firm rule) if they reach different conclusions. Finally, the 

proposed excessive share cap percentages include a rather wide range (i.e. 40-60%) of acceptable 

excessive-share caps from which a regulator will have to determine which specific number to use 

and enforce as an excessive-share cap. 

The boundaries of relevant markets are set based on the ability of consumers to switch 

products when faced with a small but relevant price increase (the hypothetical monopolist test). 

In order to apply the hypothetical monopolist test, there needs to be reliable data on quantities 

and prices demanded, which are not available for this application. In the absence of reliable 

quantitative data, there needs to be an in-depth understanding of the industry, major players, 

products, etc. Moreover, the substitutability of products is generally increasing over time, the 

demand for products is getting more elastic, and there are substantial income effects. Therefore, 

in order to apply an excessive-share cap correctly over time, it needs to be dynamically updated 

based on new information about substitutability and structural changes in the industry. In 

addition, the HHI is applicable for homogenous products as opposed to differentiated products, 

and there needs to be qualitative data available regarding whether the processors produce 

homogenous products or their products are differentiated. While the theoretical considerations 

are solid, these methods will be hard to apply if appropriate data are not available. 

The analysis of the NMFS technical group is focused mostly on the output markets as opposed to 

the input markets. While their study directly follows the Horizontal Merger Guidelines and 

provides comparison with other industries, the analysis in this industry must focus on 

monopsonizing of the input markets. Since this approach is applied to a vertically-integrated 

industry with a small number of processors and vessels predominantly controlled by the 

processors, the exercise of monopsony power is of primary interest. Ideally, the hypothetical 

monopolist test should be modified and used for the input markets. For example, if prices of 

SCOQ clams go down, can a harvester deliver the clams to another processor? The condition of 

TAC not binding and quota prices of zero are also consistent with a monopsony scenario which 
Part III. Peer Review Report: Ani Katchova 

8 

is not explored by the NMFS technical group. The question is if the pre-conditions for 

monopsony exist in this market, does the introduction of ITQs facilitate this process? 

One of the major challenges for this approach is the instrument used to address the potential 

exercise of market power. The only instrument considered in their study is by setting an 

excessive-share cap for the ITQ holdings. Ultimately, the regulator should be concerned about 

the market shares of actual processed output by the processors. The real challenge is that quota 

holdings are only an approximation for the market concentration for the processors, as quota 

holdings may be owned or controlled by entities other than the processors. In general, and in this 

market in particular, it is very hard to determine control as opposed to ownership of the quota 

based on affiliations of entities. More transparency and reliable data are needed for the 

ownership, transfers, and contracts for quotas. 

The proposed methods are applicable to a wide-range of industries, but additional considerations 

are needed on how ITQs affect the market concentration and power so that this method can be 

generally applied to this and other fisheries. For example, how will the proposed method be 

modified if the quota prices are of significant value, perhaps indicating the exercise of market 

power when TAC is not binding? What if the TAC were binding? 

In addition, reliable data on quota prices are needed to implement the proposed method, and such 

data are currently not available or reliable. The establishment of an auction or other mechanism 

of revealing quota prices and providing volume and liquidity to the market is needed. Further 

studies will need to be conducted to determine the appropriate mechanism for revealing quota 

prices in this fishery. 

One of the key arguments of the NMFS technical group is that because the quota price is 

currently close to zero and there are quotas available for trading at this price, there is no market 

power. However, this scenario is also consistent with a situation where the input market 

(harvesting) is monopsonized, as processors have constrained their output by exercising 

monopsony power.

There are other measurements that can be used to measure market power, such as examining the 

profit margins. For these measurements, detailed data on output prices and input costs will need 

to be available, which will likely not be the case. When data are available, such as the SCOQ 

price data used in the report, these data are aggregated and comingled, which makes them 

unreliable. 

The social costs and benefits of market power, including efficiencies in processing, are 

mentioned but due to lack of data, they are not considered in detail. The cost associated with the 

implementation of an excessive-share cap as well as monitoring and enforcement will likely be 

substantial, which will also need to be explored. 
Part III. Peer Review Report: Ani Katchova 

9 

3. Evaluate application of the proposed methods to the Surfclam/Ocean Quahog ITQ 

fishery. If there is disagreement with what the NMFS Technical Group 

recommended, clearly state that and your reason why. 

The application of the proposed methods to the Surfclam/Ocean Quahog ITQ fishery includes 

several steps. One of the steps includes analyzing the HHI index for quota ownership, 

harvesting, and processing. The results show that quota ownership is unconcentrated, while 

harvesting and processing are highly concentrated. The HHI index and the three-firm rule are 

used to recommend the two-part excessive-share cap for quota ownership. The NMFS have 

done the best possible analysis given the substantial problems related to data limitations and 

availability. 

The application needs to take into account the specific structure of the industry. This industry 

has been in existence for a number of years and a market structure already exists. The use of 

HHI is a rather general approach for determining market concentration that might not be specific 

enough for markets with ITQs. The NMFS technical group relies heavily on the fact that quota 

prices are currently close to zero. More transparency is needed for the quota prices. The report 

does not explain how different quota prices may affect the recommendations. 

The study uses well-established methods to determine market concentrations based on HHI and 

make recommendations regarding an excessive-share cap. The lack of adequate data is a major 

problem when applying the proposed methods. There is a considerable uncertainty with regards 

to the size of the market (imports, fringe holders) and market shares of the participants. To the 

extent that the recommendations are based on general guidelines (such as having at least three 

firms in the industry and the HHI index is below 2500), the specific numbers recommended for 

the excessive-share cap may change significantly based on the continuously updated information 

about market size, market share of participants, etc. 

Determining the relevant markets is another challenge in the application of the proposed 

methods. The information on substitutability of products and the elasticity of demand is limited 

and therefore the recommendations are largely based on anecdotal data. The ability to exercise 

market power is significantly influenced by these factors, yet because of lack of data, this 

analysis was not performed. 

The HHI index of the quota owners/holders shows that the market is unconcentrated, but data are 

not available on quota ownership and control following quota transfers and the ownership 

relations among final quota holders. Therefore, the results that quota ownership and control are 

unconcentrated are not very reliable (better reporting of quota transfer data and contracting is 

needed). The correct determination of post-transfer quota ownership and control is extremely 

important in the implementation, monitoring, and enforcing of the excessive-share cap. 

There is a rather wide range (i.e. 40-60% for short-term holdings) of acceptable excessive-share 

caps that are recommended. A regulator will have to determine which specific number to use 
Part III. Peer Review Report: Ani Katchova 

10 

and enforce as an excessive-share cap. Given the data limitations on market size, substitutability 

of products, quota ownership, I view these recommendations as general guidelines (perhaps even 

as lower bounds) for setting an excessive-share cap. 

4. Evaluate whether the approach outlined by the NMFS Technical group is 

reasonable for setting excessive share limits in fisheries managed through catch 

shares? As part of this TOR, comment on any constraints that may hinder 

application of the methods proposed by the NMFS Technical group. 

The approach outlined by the NMFS technical group is generally applicable to other fisheries 

managed through catch shares. The 7 steps as described by the NMFS technical group are 

relevant for the establishment of ITQs with excessive-share cap in other fisheries, but it may not 

apply to fisheries without ITQs. One of the constraints in the application of their methods is that 

every fishery has a path-dependent history, with the size of market, major players, and the 

structure of industry already being historically determined. This approach can be applied to 

fisheries to set ITQs and simultaneously determine an excessive-share cap. 

It is necessary to analyze all available information and data about the new fishery to assess the 

similarity and differences with the SCOQ industry before applying this approach. Several factors 

are very important to take into consideration when applying these methods to other fisheries. 

These factors include: whether or not the TAC is binding, whether or not the quota prices are 

transparent and are of significant value, the determination of relevant markets and substitutability 

with other products, whether ITQ are assigned to vessel owners or not, etc. 

Similar data constraints may be available for other industries as well. These include: the 

transparency of quota prices, the determination of quota ownership and control, the 

determination of the market size, the determination of relevant markets, etc. 

5. Provide any recommendations for further improvement (of methods). 

The NMFS technical group study provides a good starting point in considering an excessiveshare cap in the SCOQ clam industry. In my opinion, because of data limitations there is still not 

sufficient understanding of the market structure for this industry and the recommendations apply 

in a general sense. I would recommend several actions: 

1. An open auction or other mechanisms to reveal quota prices and make the market for 

quota transfers liquid and transparent needs to be established. 

2. More information can be collected from industry participants regarding market shares, 

major buyers of processed output, prices paid and received for claim inputs and outputs, 

etc. There needs to be a general description of all players from crew members to 

distributors. 
Part III. Peer Review Report: Ani Katchova 

11 

3. Merger guidelines focus on market shares and price considerations but not on production 

cost efficiencies. Further studies can be done on the cost efficiencies of operating as 

large processors. Currently there are both large and small processors still operating in the 

industry but there are claims that processors need to be of certain size to achieve 

efficiency. 

4. Further studies are needed on the monopsonization of the input markets. 

Monopsonization of the input markets is a larger concern than monopolization of the 

output market. 

5. The study only considered policies regarding excessive share of the ownership quota. 

Other instruments beyond excessive share cap should be investigated. 

6. Monitoring and enforcement of the excessive share cap will need to be studied and 

implemented. 

IV. Conclusions and Recommendations in Accordance with the Terms of Reference 

The NMFS Technical Group of Experts assessed available models for evaluating the presence of 

market power, and made recommendations with regard to their appropriateness for setting 

excessive catch share limits. The excessive-share proposal is laid out as a series of seven steps. 

They consider the HHI index using non-SCOQ clams and fringe holders, and the rule of threefirms to ensure adequate competition. At the end, they propose a two-part cap at 30% for longterm quota holdings and 40-60% for short-term quota holdings. They also recommend that there 

should be a mechanism for revealing information on quota prices, such as through an open 

auction process. 

The NMFS technical group’s proposed methods seem well grounded in the Horizontal Merger 

Guidelines, which ensures comparability with other industries. Their approach is also applicable 

to other fisheries with ITQs. The main challenge is with regards to the application of the 

proposed methods because of the lack of appropriate data on the size of the market, major 

participants and market shares, relevant markets, substitutability of products, and transparency of 

quota ownership and prices. 

I have made several recommendations, including 1) facilitating an open auction or other 

mechanisms to reveal quota prices, 2) collecting more information from industry participants 

regarding market shares, major buyers of processed output, prices paid and received for claim 

inputs and outputs, etc., 3) studying production cost efficiencies for large processors, 4) studying 

the monopsonization of the input markets, 5) exploring other instruments to control market 

power in addition to an excessive-share cap of ownership quota, and 6) studying and 

implementation of the monitoring and enforcement of the excessive share cap. 

Overall, the NMFS technical group’s study is well executed and provided a good starting point in 

establishing an excessive-share cap in the Surfclam and Ocean Quahog fishery. The NMFS 
Part III. Peer Review Report: Ani Katchova 

12 

should make any efforts to collect more detailed data in the future to aid to the understanding of 

this industry and the implication of the proposed methods. 

 
Part III. Peer Review Report: Ani Katchova 

13 

Appendix 1: Bibliography of materials provided for review 

Mid-Atlantic Fishery Management Council with the cooperation of National Marine Fisheries 

Service. “Overview of the Surfclam and Ocean Quahog Fisheries and Quota Considerations for 

2011, 2012, and 2013.” 

Glenn Mitchell, Steven Peterson, and Robert Willig. “Recommendations for Excessive-Share 

Limits in the Surfclam and Ocean Quahog Industries.” 2011. 

Other documents discussed during the panel meeting: 

Bresnahan, Timothy F. and Peter C. Reiss “Entry and Competition in Concentrated Markets” 

The Journal of Political Economy, Vol. 99, No. 5 (Oct., 1991), pp. 977-1009. 

Kwoka, John E. Jr. “The Effect of Market Share Distribution on Industry Performance” The 

Review of Economics and Statistics, Vol. 61, No. 1 (Feb., 1979), pp. 101-109. 

 
Part III. Peer Review Report: Ani Katchova 

14 

Appendix 2: A copy of the CIE Statement of Work 

Attachment A: Statement of Work for Dr. Ani Katchova 

External Independent Peer Review by the Center for Independent Experts 

Evaluation of excessive shares study in the 

Mid-Atlantic surfclam and ocean quahog ITQ fishery

Scope of Work and CIE Process: The National Marine Fisheries Service’s (NMFS) Office of 

Science and Technology coordinates and manages a contract providing external expertise 

through the Center for Independent Experts (CIE) to conduct independent peer reviews of NMFS 

scientific projects. The Statement of Work (SoW) described herein was established by the NMFS 

Project Contact and Contracting Officer’s Technical Representative (COTR), and reviewed by 

CIE for compliance with their policy for providing independent expertise that can provide 

impartial and independent peer review without conflicts of interest. CIE reviewers are selected 

by the CIE Steering Committee and CIE Coordination Team to conduct the independent peer 

review of NMFS science in compliance the predetermined Terms of Reference (ToRs) of the 

peer review. Each CIE reviewer is contracted to deliver an independent peer review report to be 

approved by the CIE Steering Committee and the report is to be formatted with content 

requirements as specified in Annex 1. This SoW describes the work tasks and deliverables of 

the CIE reviewer for conducting an independent peer review of the following NMFS project. 

Further information on the CIE process can be obtained from www.ciereviews.org. 

Project Description: Recently, the Mid-Atlantic Fishery Management Council has been 

crafting Amendment 15 to the Surfclam and Ocean Quahog Fishery Management Plan, and as 

part of the Amendment, has been attempting to define an "excessive share" threshold for the 

Individual Transferable Quota (ITQ) portion of the fishery. Regarding share accumulation, 

section 303A(c)(5)(D) of the 2006 reauthorized Magnuson-Stevens Act states that ITQ privilege 

programs should ensure that limited access privilege holders do not acquire an excessive share of 

the total limited access privileges in the program. In addition, National Standard 4 of the 

Magnuson Act (16 U.S.C. 1851(a)(4)) requires that fishing privilege allocations be carried out so 

that "no particular individual, corporation, or other entity acquires an excessive share of such 

privileges." During the course of the Council’s deliberations on the market power excessive 

share issue, it was decided that additional expertise was needed to examine the economic 

rationale behind the excessive share determination, and to recommend an excessive share level, 

if needed. In order to provide this expertise, a Technical Group of Experts (not the CIE) is being 

assembled to give advice on the appropriate excessive share threshold for the surfclam and ocean 

quahog ITQ system. This Technical Group will assess available models for evaluating the 

presence of market power, and make recommendations with regard to their appropriateness for 

setting excessive catch share limits. 

The work being performed by this Technical Group could be controversial. It will establish 

methods for determining excessive shares which might be applied in other fisheries (besides 

surfclams and ocean quahogs). With the movement by NMFS to catch share systems, 

determining what constitutes an excessive share and whether limits need to be put in place is 
Part III. Peer Review Report: Ani Katchova 

15 

extremely important because excessive share may lead to market power. Market power can lead 

to the ability to influence price in either the final product market or for factors of production (i.e. 

the fish resource). Examination of market share has never been formally investigated in this 

fishery. Thus the study by the Technical Group will be innovative and significant. 

After the Technical Group has delivered its recommendations, a peer review (by the CIE) needs 

to take place to either endorse or reject the findings from the Technical Group. This two-step 

process was agreed to by the Northeast Fisheries Science Center (NEFSC) and the Mid-Atlantic 

Fishery Management Council (MAFMC). 

The Terms of Reference (ToRs) of the peer review are attached in Annex 2. The tentative 

agenda of the panel review meeting is attached in Annex 3.

Requirements for CIE Reviewers: Three CIE reviewers shall conduct an impartial and 

independent peer review in accordance with the SoW and ToRs herein. CIE reviewers shall have 

working knowledge and recent experience in the application of economics, with specific 

expertise in industrial organization. The reviewers should have theoretical and empirical 

expertise in the economics of market structure/conduct/performance, particularly 

monopoly/oligopsony, antitrust, firm strategy, and government regulation. Experience 

conducting studies using econometric models and/or index-based assessments of market 

concentration and market power would be useful. Experience with markets operating under 

government permits such as production permit or marketing orders in agriculture, bandwidth for 

TV and radio, and tradable permit systems like ITQ’s in fisheries would be desirable. Empirical 

studies of market structure in renewable resource industries would be desirable as would an 

understanding of the statutory context for antitrust regulation. Each CIE reviewer’s duties shall 

not exceed a maximum of 14 days to complete all work tasks of the peer review described 

herein. 

Not covered by the CIE, the CIE chair’s duties should not exceed a maximum of 14 days (i.e., 

several days prior to the meeting for document review; the CIE panel meeting in Woods Hole; 

several days following the open meeting for SARC Summary Report preparation). 

Location of Peer Review: Each CIE reviewer shall conduct an independent peer review during 

the panel review meeting scheduled in Woods Hole, Massachusetts during 21-23 June 2011. 

Statement of Tasks: Each CIE reviewer shall complete the following tasks in accordance with 

the SoW and Schedule of Milestones and Deliverables herein. 

1. Prior to the Peer Review Meeting: 

Upon completion of the CIE reviewer selection by the CIE Steering Committee, the CIE shall 

provide the CIE reviewer information (full name, title, affiliation, country, address, email, FAX) 

to the COTR, who forwards this information to the NMFS Project Contact no later the date 

specified in the Schedule of Milestones and Deliverables. The CIE is responsible for providing 

the SoW and ToRs to the CIE reviewers. The NMFS Project Contact is responsible for 

providing the CIE reviewers with the background documents, reports, foreign national security 
Part III. Peer Review Report: Ani Katchova 

16 

clearance, and other information concerning pertinent meeting arrangements. The NMFS Project 

Contact is also responsible for providing the Chair (see below) a copy of the SoW, background 

documents and final report in advance of the panel review meeting. Any changes to the SoW or 

ToRs must be made through the COTR prior to the commencement of the peer review. 

Foreign National Security Clearance: When CIE reviewers participate during a panel review 

meeting at a government facility, the NMFS Project Contact is responsible for obtaining the 

Foreign National Security Clearance approval for CIE reviewers who are non-US citizens. For 

this reason, the CIE reviewers shall provide requested information (e.g., first and last name, 

contact information, gender, birth date, passport number, country of passport, travel dates, 

country of citizenship, country of current residence, home country, and FAX number) to the 

NMFS Project Contact for the purpose of their security clearance, and this information shall be 

submitted at least 30 days before the peer review in accordance with the NOAA Deemed Export 

Technology Control Program NAO 207-12 regulations available at the Deemed Exports NAO 

website: http://deemedexports.noaa.gov/sponsor.html). 

Pre-review Background Documents: Approximately two weeks before the peer review, the 

NMFS Project Contact will send (by electronic mail or make available at an FTP site) to the CIE 

reviewers the necessary background information and reports for the peer review. In the case 

where the documents need to be mailed, the NMFS Project Contact will consult with the CIE 

Lead Coordinator on where to send documents. CIE reviewers are responsible only for the prereview documents that are delivered to the reviewer in accordance to the SoW scheduled 

deadlines specified herein. The CIE reviewers shall read all documents in preparation for the 

peer review. 

2. During the Open Meeting 

Panel Review Meeting: Each CIE reviewer shall conduct the independent peer review in 

accordance with the SoW and ToRs, and shall not serve in any other role unless specified herein. 

Modifications to the SoW and ToRs can not be made during the peer review, and any SoW 

or ToRs modifications prior to the peer review shall be approved by the COTR and CIE 

Lead Coordinator. Each CIE reviewer shall actively participate in a professional and respectful 

manner as a member of the meeting review panel, and their peer review tasks shall be focused on 

the ToRs as specified herein. The NMFS Project Contact is responsible for any facility 

arrangements (e.g., conference room for panel review meetings or teleconference arrangements). 

The NMFS Project Contact is responsible for ensuring that the Chair understands the contractual 

role of the CIE reviewers as specified herein. The CIE Lead Coordinator can contact the Project 

Contact to confirm any peer review arrangements, including the meeting facility arrangements. 

(Review Meeting Chair) 

A member of the Mid-Atlantic Management Council Scientific and Statistical Committee will 

serve as Chairperson. The role of the Chair is to facilitate the meeting, which includes 

coordination of presentations and discussions, and making sure all Terms of Reference are 

reviewed. Additionally, the Chair shall prepare the summary report from the meeting. During the 
Part III. Peer Review Report: Ani Katchova 

17 

meeting the Chair can ask questions or make statements to clarify discussions, and he can move 

the discussion along to ensure that the CIE reviewers address all of the TORs. 

(CIE Reviewers) 

Each CIE reviewer shall participate as a peer reviewer in a panel discussion centered on a report 

furnished to NMFS by the Technical Group of Experts regarding excessive shares in the 

surfclam and ocean quahog fishery. Reviewers are to determine whether the findings of the 

Technical Group are valid given the Terms of Reference provided to the expert panel. If 

reviewers consider the recommendations of the expert panel to be inappropriate, the reviewers 

should recommend an alternative. 

During the question and answer period, a representative of the NMFS expert panel will be 

available to answer questions about the report. The CIE members can provide feedback to the 

expert panel member at that time. 

(Other Panel Members) 

A representative from the Mid-Atlantic Fishery Management Council staff, and the Northeast 

Fisheries Science Center Social Sciences Branch will be available during the meeting to provide 

any additional information requested by the CIE reviewers. Other panel members may assist the 

Chair prepare the summary report, if requested. 

3. After the Open Meeting 

 

Contract Deliverables - Independent CIE Peer Review Reports: Each CIE reviewer shall 

complete an independent peer review report in accordance with the SoW. Each CIE reviewer 

shall complete the independent peer review according to required format and content as 

described in Annex 1. Each CIE reviewer shall complete the independent peer review 

addressing each ToR as described in Annex 2. 

Other Tasks – Contribution to Summary Report: The Chair from the SSC and CIE reviewers 

will prepare the Peer Review Summary Report. Each CIE reviewer will discuss whether they 

hold similar views on each Term of Reference and whether their opinions can be summarized 

into a single conclusion for all or only for some of the Terms of Reference. For terms where a 

similar view can be reached, the Summary Report will contain a summary of such opinions. In 

cases where multiple and/or differing views exist on a given Term of Reference, the Report will 

note that there is no agreement and will specify - in a summary manner – what the different 

opinions are and the reason(s) for the difference in opinions. 

The Chair’s objective during this Summary Report development process will be to identify or 

facilitate the finding of an agreement rather than forcing the panel to reach an agreement. The 

Chair will take the lead in editing and completing this report. The Report (please see Annex 1 for 

information on contents) should address whether each Term of Reference was completed 

successfully. For each Term of Reference, this report should state why that Term of Reference 

was or was not completed successfully. 
Part III. Peer Review Report: Ani Katchova 

18 

Specific Tasks for CIE Reviewers: The following chronological list of tasks shall be 

completed by each CIE reviewer in a timely manner as specified in the Schedule of Milestones 

and Deliverables. 

1) Conduct necessary pre-review preparations, including the review of background material 

and reports provided by the NMFS Project Contact in advance of the peer review. 

2) Participate during the panel review meeting at the Northeast Fisheries Science Center, 

Woods Hole, MA laboratory during 21-23 June, 2011 as specified herein, and conduct an 

independent peer review in accordance with the ToRs (Annex 2). 

3) No later than 7 July, 2011, each CIE reviewer shall submit an independent peer review 

report addressed to the “Center for Independent Experts”, and the report should be sent to 

Mr. Manoj Shivlani, CIE Lead Coordinator, via email to shivlanim@bellsouth.net, and 

Dr. David Sampson, CIE Regional Coordinator, via email to 

david.sampson@oregonstate.edu. Each CIE report shall be written using the format and 

content requirements specified in Annex 1, and address each ToR in Annex 2. 

Schedule of Milestones and Deliverables: CIE shall complete the tasks and deliverables 

described in this SoW in accordance with the following schedule. 

17 May 2011 CIE sends reviewer contact information to the COTR, who then sends 

this to the NMFS Project Contact 

7 June 2011 NMFS Project Contact sends the CIE Reviewers the pre-review 

documents 

 21-23 June 2011 Each reviewer participates and conducts an independent peer review 

during the panel review meeting 

 7 July 2011 CIE reviewers submit draft CIE independent peer review reports to the 

CIE Lead Coordinator and CIE Regional Coordinator 

14 July 2001 Draft of Summary Report, reviewed by all CIE reviewers, due to panel 

Chair * 

21 July 2001 Panel Chair send final Summary Report, approved by CIE reviewers, to 

NEFSC contact 

21 July 2011 CIE submits CIE reports to the COTR 

28 July 2011 The COTR distributes the final CIE reports to the NMFS Project 

Contact and regional Center Director 

*The Summary report will not be submitted, reviewed, or approved by the CIE 

Modifications to the Statement of Work: Requests to modify this SoW must be approved by 

the Contracting Officer at least 15 working days prior to making any permanent substitutions. 
Part III. Peer Review Report: Ani Katchova 

19 

The Contracting Officer will notify the COTR within 10 working days after receipt of all 

required information of the decision on substitutions. The COTR can approve changes to the 

milestone dates, list of pre-review documents, and ToRs within the SoW as long as the role and 

ability of the CIE reviewers to complete the deliverable in accordance with the SoW is not 

adversely impacted. The SoW and ToRs shall not be changed once the peer review has begun.

 

Acceptance of Deliverables: Upon review and acceptance of the CIE independent peer review 

reports by the CIE Lead Coordinator, Regional Coordinator, and Steering Committee, these 

reports shall be sent to the COTR for final approval as contract deliverables based on compliance 

with the SoW and ToRs. As specified in the Schedule of Milestones and Deliverables, the CIE 

shall send via e-mail the contract deliverables (CIE independent peer review reports) to the 

COTR (William Michaels, via William.Michaels@noaa.gov). 

Applicable Performance Standards: The contract is successfully completed when the COTR 

provides final approval of the contract deliverables. The acceptance of the contract deliverables 

shall be based on three performance standards: 

(1) each CIE report shall completed with the format and content in accordance with Annex 1, 

(2) each CIE report shall address each ToR as specified in Annex 2, 

(3) the CIE reports shall be delivered in a timely manner as specified in the schedule of 

milestones and deliverables. 

Distribution of Approved Deliverables: Upon acceptance by the COTR, the CIE Lead 

Coordinator shall send via e-mail the final CIE reports in *.PDF format to the COTR. The 

COTR will distribute the CIE reports to the NMFS Project Contact and Center Director. 

Support Personnel: 

William Michaels, Program Manager, COTR) 

NMFS Office of Science and Technology 

1315 East West Hwy, SSMC3, F/ST4, Silver Spring, MD 20910 

William.Michaels@noaa.gov Phone: 301-713-2363 ext 136 

Manoj Shivlani, CIE Lead Coordinator 

Northern Taiga Ventures, Inc. 

10600 SW 131st Court, Miami, FL 33186 

shivlanim@bellsouth.net Phone: 305-383-4229 

Roger W. Peretti, Executive Vice President 

Northern Taiga Ventures, Inc. (NTVI) 

22375 Broderick Drive, Suite 215, Sterling, VA 20166 

RPerretti@ntvifederal.com Phone: 571-223-7717 
Part III. Peer Review Report: Ani Katchova 

20 

Key Personnel: 

NMFS Project Contact: 

John B. Walden 

Northeast Fisheries Science Center 

166 Water Street, Woods Hole, MA 02536 

John.Walden@noaa.gov 

Phone: 508-495-2355 
Part III. Peer Review Report: Ani Katchova 

21 

Annex 1: Format and Contents of CIE Independent Peer Review Report 

1. The CIE independent report shall be prefaced with an Executive Summary providing a concise 

summary of the findings and recommendations in accordance with the ToRs. 

2. The main body of the reviewer report shall consist of a Background, Description of the 

Individual Reviewer’s Role in the Review Activities, Summary of Findings for each ToR in 

which the weaknesses and strengths are described, and Conclusions and Recommendations in 

accordance with the ToRs. 

a. Reviewers should describe in their own words the review activities completed during the 

panel review meeting, including providing a brief summary of findings, of the science, 

conclusions, and recommendations. 

b. Reviewers should discuss their independent views on each ToR even if these were 

consistent with those of other panelists, and especially where there were divergent views. 

c. Reviewers should elaborate on any points raised in the Summary Report that they feel might 

require further clarification. 

d. Reviewers shall provide a critique of the NMFS review process, including suggestions for 

improvements of both process and products. 

e. The CIE independent report shall be a stand-alone document for others to understand the 

weaknesses and strengths of the science reviewed, regardless of whether or not they read the 

summary report. The CIE independent report shall be an independent peer review of each 

ToRs, and shall not simply repeat the contents of the summary report. 

3. The reviewer report shall include the following appendices: 

Appendix 1: Bibliography of materials provided for review 

Appendix 2: A copy of the CIE Statement of Work 

Appendix 3: Panel Membership or other pertinent information from the panel review meeting. 

 
Part III. Peer Review Report: Ani Katchova 

22 

Annex 2: Terms of Reference for the Peer Review 

Evaluation of excessive shares study in the 

Mid-Atlantic surfclam and ocean quahog ITQ fishery

The peer review shall be conducted based on the following Terms of Reference (ToRs): 

1. Describe the method or process used by the NMFS Technical Group for determining the 

maximum possible allowable percentage share of quota ownership that will prevent an entity 

from obtaining market power. 

2. Evaluate the strengths and weaknesses of the proposed method developed by the NMFS 

Technical group for determining maximum possible allowable percentage share of quota 

ownership. Review and comment on the data requirements necessary for applying the proposed 

methods. 

3. Evaluate application of the proposed methods to the Surfclam/Ocean Quahog ITQ fishery. If 

there is disagreement with what the NMFS Technical Group recommended, clearly state that and 

your reason why. 

4. Evaluate whether the approach outlined by the NMFS Technical group is reasonable for 

setting excessive share limits in fisheries managed through catch shares? As part of this TOR, 

comment on any constraints that may hinder application of the methods proposed by the NMFS 

Technical group. 

5. Provide any recommendations for further improvement 

 
Part III. Peer Review Report: Ani Katchova 

23 

Annex 3: Tentative Agenda 

Evaluation of excessive shares study in the 

Mid-Atlantic surfclam and ocean quahog ITQ fishery

 Falmouth and Woods Hole, Massachusetts during 21-23 June 2011 

Tuesday, June 21. Holiday Inn, Lighthouse Room, Jones Road, Falmouth, MA 

 9:00-9:15 AM 

 Opening 

 Welcome

 Introduction SSC Chair 

 Agenda 

 Conduct of Meeting 

9:15 – 9:30 Background and Need for Expert Panel Report – Lee Anderson 

 

9:30-11 Report of the NMFS Expert Panel - NMFS Expert Panel Rep. 

 

11-11:15 Break 

 

11:15 -Noon Review Terms of Reference – CIE Panel 

 

Noon – 1:15 Lunch

1:15 – 3:00 CIE Panel Discussion – Terms of Reference #1. 

3:00-3:15 Break 

3:15-4:00 Public Comments

 

4:00-4:45 CIE Panel Discussion – Terms of Reference #2 

4:45-5:00 Questions for following day 

Wednesday, June 22. Holiday Inn, Lighthouse Room, Jones Road, Falmouth, MA 

9:00-9:30 Review any outstanding questions from previous day 

9:30-10:30 CIE Panel Discussion – Terms of Reference #3 

10:30-10:45 Break 

10:45-Noon CIE Panel Discussion – Terms of Reference #4 
Part III. Peer Review Report: Ani Katchova 

24 

Noon-1:30 Lunch 

1:30 – 3:00 CIE Panel Discussion – Terms of Reference #5 

3:00-3:15 Break 

3:15-5:00 CIE Panel Discussion – Outstanding Issues 

 

Thursday June 23 Location: Clark Conference Room, Northeast Fisheries Science Center. 

9:00 – 5:00 Report writing (Meeting Closed to Public) 

 
Part III. Peer Review Report: Ani Katchova 

25 

Appendix 3: Panel Membership or other pertinent information from the panel review 

meeting 

The panel consisted of James Wilen (University of California at Davis), and three reviewers 

selected by the CIE: Rigoberto Lopez (University of Connecticut), Ragnar Arnanson (University 

of Iceland), and Ani Katchova (University of Kentucky). Glenn Mitchell and Steven Peterson 

were present for most of the panel meeting presenting information and answering questions. 

John Walden and Dale Squires were present at the panel review as well as panel discussion 

session to help with the review process and offer additional information when needed. 

Participants from the industry and various organizations were also present and offered 

comments/feedback. 
Part IV: Peer Review Report 

by 

Rigoberto A. Lopez 
Center!for!Independent!Experts

CIE!Independent!Review!of!the!Technical!Report!!

on!Recommendations!for!Excessive9Share!Limits!

in!the!Surfclam!and!Ocean!Quahog!Fisheries!

By

Rigoberto!A.!Lopez

Professor!and!Head!

Department!of!Agricultural!and!Resource!Economics

Director!

The!Zwick!Center!for!Food!and!Resource!Policy!

University!of!Connecticut!

1376!Storrs!Road,!Room!318!

Storrs,!CT!06269O4021

Phone:!(860)!486O1921,!Fax:!(860)!486O1932

Email:!Rigoberto_Lopez@hotmail.com!

July!4,!2011

Part IV. Peer Review: Rigoberto A. Lopez
1!

Table!of!Contents

! ! ! ! ! ! ! ! ! !!!!!!!!!Page!

Executive!Summary! ! ! ! ! ! ! ! !!2

Background!! ! ! ! ! ! ! ! ! !!5

Reviewer’s!Role!in!the!Review!Process! ! ! ! ! !!6

Summary!of!Findings!for!Terms!of!References! ! ! ! !!7

! Terms!of!Reference!1!! ! ! ! ! ! !!7

! Terms!of!Reference!2!! ! ! ! ! ! !!9

!!!!!!!!! Terms!of!Reference!3!! ! ! ! ! ! !11

! Terms!of!Reference!4!! ! ! ! ! ! !12

! Terms!of!Reference!5!! ! ! ! ! ! !13

Appendix!1:!Bibliography!of!Materials!Provided! ! ! ! 17

Appendix!2:!Statement!of!Work!for!Dr.!Rigoberto!Lopez! ! ! 18

Appendix!3:!Panel!Membership! ! ! ! ! ! 29

! ! ! ! ! ! !

Part IV. Peer Review: Rigoberto A. Lopez
2!

! !

Executive!Summary

Background!and!Objective!!

Since!1990,!surfclam!and!ocean!quahog!(SCOQ)!fisheries!are!each!managed!through!setting!a!

total!allowable!catch!and!individual!transferable!quotas.!Over!the!last!20!years,!and!in!the!last!

five!in!particular,!this!sector!has!experienced:

• significant!increases!in!market!concentration!in!both!processing!and!harvesting,!

resulting!in!fewer!firms!either!buying!or!selling!SCOQ!products;!and!!

• a!significant!increase!in!vertical!coordination!between!processors!and!harvesters.

These!trends!have!raised!concerns!about!market!power!impacts!and!also!raised!awareness!of!

how!an!excessiveOshare!limit!might!be!implemented!in!this!and!any!other!fishery!facing!

increasing!concentration.!!

At!the!request!of!the!Center!for!Independent!Experts,!the!objective!of!this!report!is!to!

independently!evaluate!a!report!by!the!Technical!Group!of!Experts!(Mitchell,!Peterson,!and!

Willig,!2011)!containing!recommendations!for!excessiveOshare!limits!in!the!SCOQ!and!other!U.S.!

fisheries.!

Major!Findings!

Methodology*Used*by*the*Technical*Group*

The!primary!tool!used!by!the!Technical!Group!for!determining!the!maximum!possible!allowable!

percentage!share!of!quota!ownership!that!will!prevent!market!power!is!the!2010!Horizontal*

Merger*Guidelines!by!the!U.S.!Department!of!Justice!and!the!Federal!Trade!Commission,!

particularly!the!sections!pertaining!to!market!concentration.!The!steps!may!be!summarized!as:!

• Determine!the!ownership!and!control!of!quotas!in!the!fishery!

• Determine!the!relevant!market,!particularly!in!reference!to!competition!from!outside!

the!fishery,!such!as!state!fisheries!and!imports.!

• Compute!market!shares!based!on!the!previous!steps!

• Compute!the!HerfindhalOHirshmann!index!based!on!a!hypothetical!maximum!share!cap!

and!ensure!that!the!share!cap!does!not!lead!to!an!HHI!that!exceeds!2500,!which!is!the!

Part IV. Peer Review: Rigoberto A. Lopez
3!

threshold!determined!by!the!Horizontal*Merger*Guidelines!for!an!industry!to!be!deemed!

“highly!concentrated.”!

A!corollary!tool!is!to!ensure!that!there!are!three!efficient!processors!in!the!fishery.!!

Strengths*and*Weaknesses*of*the*Technical*Group*Report*

The!following!are!deemed!strengths!of!the!report:!

• Use!of!the!most!universal!guidelines!for!assessing!competition:!the!Horizontal*Merger*

Guidelines,!particularly!a!threshold!HHI!of!2500,!which!is!the!gold!standard.!

• Inclusion!of!outside!competitors!that!determine!the!relevant!output!market,!particularly!

imports!and!state!fisheries!as!well!as!fringe!firms!in!the!fisheries,!which!are!bound!to!

behave!competitively!regardless!of!the!excessive!share!cap.!

The!following!are!deemed!issues!that!require!further!attention:!

• Focusing!exclusively!on!monopoly!power!at!the!expense!of!a!focus!on!monopsony!

power,!which!is!likely!to!be!the!prevailing!case!in!fisheries.!

• Lack!of!explicit!consideration!of!harvesting!and!processing!efficiency,!which!may!give!

room!to!improve!performance!of!the!fishery,!particularly!if!market!power!effects!are!

weak.!Cost!reductions!may!reduce!or!even!reverse!a!firm’s!incentive!to!elevate!price!in!

the!monopoly!case.!

Crucial!information!to!implement!the!approach!requires!careful!definition!of!quota!ownership!

and!control!and!of!the!relevant!market.!!

Applicability*to*the*SCOQ*and*Other*Fisheries*

The!approach!used!by!the!Technical!Group!is!generic!and!is!applicable!to!just!about!any!

fisheries,!provided!accurate!information!is!obtained!on!quota!rights!and!control,!boundaries!of!

the!relevant!market,!and!efficiency!effects!of!the!scale!of!operation.!For!the!case!of!the!SCOQ!

fisheries,!given!current!conditions,!it!is!recommended!to!set!a!fixed!excessiveOshare!cap!of!30O

40%,!or!a!more!flexible!twoOpart!cap!of!30%!long!term,!40O60%!short!term.!!

Although!a!30O40%!cap!may!be!restrictive!if!the!market!is!defined!too!narrowly!or!if!efficiency!

effects!of!concentration!are!ignored,!it!is!likely!to!be!appropriate!if!there!are!buying!power!or!

Part IV. Peer Review: Rigoberto A. Lopez
4!

monopsony!concerns!since,!for!the!latter,!the!relevant!market!is!geographically!confined!to!the!

fishery!in!question.!

Besides!the!monopsony!and!efficiency!concerns!pointed!out,!the!main!room!for!improvement!is!

collecting!accurate!information!about!the!fishery,!the!market,!and!performance!indicators!such!

as!quota!prices.!!

Public!policy!to!restrain!excessive!market!concentration!via!excessiveOshare!caps!or!by!other!

means!is!commonplace!in!nonOfish!U.S.!markets!and!has!been!the!focus!of!antitrust!and!

competition!policy!for!many!years.!When!evaluating!excessiveOshare!caps,!the!ultimate!issue!is!

not!only!whether!adverse!competitive!effects!have!resulted!from!ongoing!concentration,!but!!

whether!such!effects!are!likely!to!arise!in!the!future!and!if!excessiveOshare!caps!can!deter!such!

trends!without!harming!market!performance!and!competitiveness.!!

Part IV. Peer Review: Rigoberto A. Lopez
5!

Background

Federal!fisheries!are!commonly!managed!under!annual!catch!limits!and!some!type!of!limited!

access!programs!to!address!both!economic!and!environmental!sustainability.!Since!1990,!

surfclam!and!ocean!quahog!(SCOQ)!fisheries!are!each!managed!through!setting!a!total!

allowable!catch!(TAC)!and!individual!transferable!quotas!(ITQs).!!

Over!the!last!20!years,!there!have!been!two!significant!changes!in!market!structure!leading!to!

concerns!over!competition,!or!lack!thereof,!with!regard!to!the!current!ITQ!system:!!

• a!significant!increase!in!market!concentration!of!firms!at!both!the!harvesting!and!

processing!stages!resulting!in!fewer!firms!either!buying!or!selling!SCOQ!products;!and!!

• a!significant!increase!in!vertical!coordination!between!processors!and!harvesters,!

specifically!the!use!of!contracts!and,!in!the!clam!subsector!in!particular,!processor!

control!of!ITQs.!!!

Given!these!changes,!a!central!concern!is!the!potential!market!power!effects!from!market!

concentration!of!SCOQ!quota!ownership!and!control.!One!instrument!available!to!regulators,!

and!the!focus!of!this!report,!is!to!set!an!excessive!catch!share,!i.e.,!the!maximum!catch!share!

allowable!to!a!harvester!or!to!an!entity!such!as!a!processor!who!may!also!control!part!of!the!

harvest!in!order!to!mitigate!or!prevent!market!power.!!!

The!golden!rule!of!market!concentration!regulation!is!provided!by!the!Department!of!Justice!

and!the!Federal!Trade!Commission’s!Horizontal*Merger*Guidelines*(HMG).

1

**Accordingly,!the!

threshold!for!an!industry!to!be!deemed!“highly!concentrated“!is!determined!by!an!excessive!

share!of!the!quota!calculated!by!the!HerfindahlOHirschman!Index!(HHI),!which!measures!the!size!

distribution!of!firms!by!summing!their!squared!market!shares!(thus!ranging!from!0!to!10,000),!

with!H=2,500!being!a!cause!of!concern,!as!based!on!past!experience!by!U.S.!antitrust!

authorities.!!!

By!this!standard,!the!HHI!of!surfclam!and!ocean!quahog!processing!purchases!have!already!!

surpassed!this!threshold,!raising!concern!about!the!exercise!of!market!power,!particularly!if!the!

current!trend!in!processing!concentration!continues,!which!is!likely!to!be!the!case!if!left!

unchecked.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

1

!U.S.!Department!of!Justice!and!the!Federal!Trade!Commisssion.!Horizontal*Merger*Guidelines.*Washington,!D.C.,!

August!19,!2010.!Available!at:!http://www.justice.gov/atr/public/guidelines/hmgO2010.html

Part IV. Peer Review: Rigoberto A. Lopez
6!

With!regard!to!pending!Amendment!15!to!the!SCOQ!Fishery!Management!Plan,!administered!

by!the!MidOAtlantic!Fishery!Management!Council!(MAFMC),!the!goal!is!to!define!an!“excessive!

share”!threshold!for!the!ITQ!to!prevent!limited!access!holders!from!acquiring!an!excessive!

share!of!the!TAC!privileges,!in!compliance!with!the!MagnusonOStevens!Act.!The!issue!of!market!

power!effects!of!excessive!shares!is!an!overriding!concern.!At!the!request!of!the!MAFMC!and!

the!National!Marine!Fisheries!Service!(NMFS),!a!group!of!technical!experts!(Mitchell,!Peterson!

and!Willig,!2011,!Appendix!A)!provided!recommendations!for!excessiveOshare!limits!for!SCOQ!

fisheries.!

Reviewer’s!Role!in!the!Review!Process

At!the!request!of!the!Center!for!Independent!Experts!(CIE),!I!was!asked!to!provide!an!impartial!

and!independent!peer!review,!without!conflicts!of!interest,!of!a!report!by!the!Technical!Group!

of!Experts!(Mitchell,!Peterson,!and!Willig,!2011,!Appendix!A)!containing!recommendations!for!

excessiveOshare!limits!in!the!SCOQ!fisheries.!The!Statement!of!Work!(tasks!and!deliverables),!

the!Terms!of!Reference!and!the!agenda!for!the!CIE!panel!review!are!in!Appendix!B.!This!report!

follows!the!content!requirement!as!specified!in!Annex!1!of!Appendix!B.!!The!period!of!review!

spanned!from!May!17!through!July!21,!2011,!and!included!an!open,!inOperson!meeting!on!June!

21O23,!2011!at!Falmouth/Woods!Hole,!Massachusetts,!and!a!preOmeeting!review!of!the!

background!documents!received!as!well!as!the!postOmeeting!writing!of!this!report.!

Dr.!Rigoberto!A.!Lopez!is!a!professor!and!Head!of!the!Department!of!Agricultural!and!Resource!

Economics!and!Director!of!the!Charles!J.!Zwick!Center!for!Food!and!Resource!Policy!at!the!

University!of!Connecticut.!He!has!extensive!expertise!in!food!policy!and!industrial!organization!

and!has!published!on!the!effects!of!industrial!concentration!on!market!power!and!cost!

efficiency!as!well!as!econometric!analyses!of!market!power!in!the!food!industries.!He!has!also!

published!on!the!analysis!of!quantitative!trade!barriers!and!their!impact!on!welfare!

participants.2

!This!report!summarizes!his!evaluation!of!the!Mitchell,!Peterson!and!Willig!(2011)!

recommendations,!both!independently!and!collectively!as!a!CIE!panel!member.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

2 Lopez,!R.A.,!A.!Azzam,!and!C.!LirónOEspaña.!“Market!Power!and/or!Efficiency:!A!Structural!Approach.”!Rev.*Ind.*

Org.*!20(2002):!115O126.!Bhuyan,!S.!and!R.A.!Lopez.!”Oligopoly!Power!in!the!Food!and!Tobacco!Industries.”!Amer.*J.*

Agric.*Econ.*79(1997):!1035O1043.!Bonanno,!A.!and!R.A.!Lopez.!“Competition!Effects!of!Supermarket!Services.”!

Amer.*J.*Agric.*Econ.*91(2009):!555O568.!Lopez,R.A.!and!E.!Lopez.!“The!Impact!of!Imports!on!Price!Cost!Margins:!An!

Empirical!Illustration.”!Emp.*Econ.*28(2003):!403O416.!Lopez,!R.A.!and!Z.!You.!“Determinants!of!Oligopsony!Power:!

The!Haitian!Coffee!Case.”!J.*Dev.*Econ.*!35(1993):!465O473.

Part IV. Peer Review: Rigoberto A. Lopez
7!

Summary!of!Findings!for!Terms!of!Reference

Terms&of&Reference&1:&*Describe*the*method*or*process*used*by*the*NMFS*Technical*Group*for*

determining*the*maximum*possible*allowable*percentage*share*of*quota*ownership*that*will*

prevent*an*entity*from*obtaining*market*power.*

An!excessiveOshare!cap!limits!the!amount!of!quota!of!any!harvesting!quota!holder.!The!primary!

method!used!by!the!NMFS!Technical!Group!is!to!set!the!excessiveOshare!cap!so!that!the!HHI!

does!not!exceed!2500,!based!on!the!Federal!Trade!Commission’s!2010!Horizontal*Merger*

Guidelines,!in!order!to!ensure!that!there!are!at!least!three!efficient!processors,!based!on!a!

common!(Kwoka,!1979),!albeit!not!universal,!principle!that!a!third!firm!imposes!a!crucial!proO

competitive!effect,!as!reflected!by!priceOcost!margins.3

!As!with!any!excessiveOshare!cap,!the!

process!requires!information!on!ITQ!ownership!and!control,!economies!of!scale,!substitutability!

of!products,!and!definition!of!relevant!markets!or!size!of!the!market!in!order!to!compute!the!

correct!market!shares.!!

To!determine!a*priori*whether!or!not!an!excessive!share!cap!is!necessary,!the!Technical!Report!

compares!TAC!relative!to!the!monopoly!equilibrium.!If!TAC!is!below!the!monopoly!output,!TAC!

would!be!binding!and!force!the!market!to!operate!at!an!output!more!constraining!than!one!

being!controlled!by!a!single!monopolist.!In!this!case,!an!excessiveOshare!cap!is!not!necessary!

because!there!would!be!no!incentive!to!withhold!quota!(meaning!withholding!harvesting!

through!not!using!all!the!ITQs)!in!order!to!raise!price.!!An!interesting!point!is!that,!at!the!

margin,!a!unit!of!an!ITQ!is!worth!the!difference!between!the!demand!price!and!the!marginal!

cost!of!harvesting.!Thus,!the!“price”!of!the!quota!is!positive!if!there!is!monopoly!power!or!if!

there!is!competitive!behavior;!but!TAC!is!binding,!creating!a!wedge!between!price!and!marginal!

cost.!If!there!is!perfectly!competitive!behavior!and!TAC!is!nonObinding!(there!is!unused,!surplus!

quota!in!the!market),!then!the!price!of!the!quota!is!zero.!Thus,!the!price!of!the!quota!conveys!

relevant!information!as!to!the!preOexisting!competitive!conditions!in!a!fishery.!!!

In!terms!of!the!relevant!market,!the!technical!group!focuses!on!two!elements!and!how!they!

affect!market!shares!and,!therefore,!the!determination!of!an!excessiveOshare!cap:!

• the!share!of!nonOSCOQ!fisheries!(state!fisheries!and!imports)!as!their!increasing!

presence!defines!a!larger!market,!provided!they!are!significant!substitutes!for!the!

fishery!product!and!geography!in!question,!and!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

3

!Kwoka,!J.E.!Jr.!“The!Effect!of!Market!Share!Distribution!on!Industry!Performance.”!Rev.*Econ.*Stat.!61(1979):!101O

109.!In!the!business!literature,!there!is!a!widely!accepted!notion!that!a!Rule!of!Three!structure!is!optimal!because!

three!big!and!efficient!companies!(e.g.,!with!more!than!10%!market!share)!act!as!a!tripod!to!ensure!that!neither!

destructive!competition!nor!collusion!prevails!(see!Sheth,!J.N.!and!S.!Sisodia.!The*Rule*of*Three:*Surviving*and*

Thriving*in*Competitive*Markets.*New!York:!Free!Press,!2002).!

Part IV. Peer Review: Rigoberto A. Lopez
8!

• the!share!of!fringe!firms!as!their!increasing!presence!reduces!the!market!subject!to!

excessiveOshare!caps!and,!by!nature!of!behaving!competitively,!exerts!a!disciplining!

effect.!

The!Technical!Group’s!determination!of!market!shares!is!as!follows.!!First,!participants!are!

classified!into!(1)!regular!quota!holders!or!controllers!who!can!be!affected!by!the!excessiveO

share!caps!(e.g.,!TAC!shares!of!more!than!10%)!and!(2)!fringe!firms!holding!small!market!shares!

or!serving!niche!markets.!Let!TACi* denote!the!quota!allocated!to!the!ith!quota!holder,!where!

TAC*is!simply!the!sum!over!all!ITQs!as!set!by!the!fishery!authority.!Let!M*denote!the!size!of!the!

market!which!is!composed!of!TAC!(effective!or!binding)!plus!“outside”!(O)!fisheries!to!account!

for!imports!and!state!fisheries!that!may!be!substitutes!for!SCOQ!fisheries.!Thus,!M=TAC+O

denotes!the!size!of!the!market.*Thus,!a!relevant!or!“effective”!market!share!is!defined!as!

TACi/M.!By!squaring!these!market!shares!and!adding!up!one!obtains!the!‘relevant’!HHI.!The!

sum!of!the!squared!shares!of!the!fringe!firms!is!excluded!from!the!summation!for!

computational!convenience,!as!small!shares’!squares!have!little!impact!on!the!HHI.!However,!

their!aggregate!share!limits!the!portion!of!TAC!subject!to!the!excessiveOshare!cap.!

The!Technical!Group!relies!on!four!alternative!scenarios!corresponding!to!different!levels!of!

nonOSCOQ!fisheries!(0,!10,!20!and!40%!of!TAC),!where!0%!denotes!the!case!where!there!are!no!

substitutes!from!outside!fisheries.!The!Technical!Report!then!presents!a!table!for!each!scenario!

with!computed!HHIs!resulting!from!combinations!of!alternative!levels!of!excessiveOshare!caps!

(20O70%)!and!aggregate!shares!of!fringe!firms!(0O30%)!in!the!SCOQ!fisheries.!!As!the!market!

expands!beyond!the!product!and/or!geographic!boundaries!of!the!SCOQ!fisheries,!or!as!the!

aggregate!share!of!fringe!firms!increases,!the!excessiveOshare!cap!corresponding!to!an!HHI!of!

2500!increases.!!!

For!example,!scenario!1!assumes!a!market!with!zero!nonOSCOQ!fisheries.!In!this!case,!a!20%!

excessiveOshare!cap!(i.e.,!20%!of!TAC)!with!no!fringe!firms!results!in!an!HHI!of!2000.!Scenario!2!

assumes!a!market!with!nonOSCOQ!fisheries!equivalent!to!10%!of!TAC.!The!same!share!cap!of!

20%!of!TAC!as!in!scenario!1!would!now!result!in!an!effective!HHI!of!1653!as!the!market!is!

defined!more!broadly.!In!other!words,!in!scenario!2,!a!20%!share!cap!corresponds!to!an!

18.182%!market!share!since!the!market!is!10%!larger!(M=1.10!TAC,!and!18.182%=20%/1.10),!

thus!reducing!the!HHI.!

Generation!of!effective!HHIs!over!four!scenarios!depicting!shares!of!fringe!firms!of!up!to!30%!of!

TAC!and!state!fisheries!and!imports!with!volumes!of!up!to!40%!of!TAC!lead!to!a!range!of!

acceptable!combinations!of!excessiveOshare!caps!to!ensure!an!effective!HHI!of!2500!and!three!

nonOfringe!firms!operating!in!the!market.!In!other!words,!any!level!of!excessiveOshare!cap!with!

combinations!of!nonOSCOQ!fisheries!and!aggregate!shares!of!fringe!firms!resulting!in!HHIs!over!

Part IV. Peer Review: Rigoberto A. Lopez
9!

2500!are!deemed!undesirable!as!they!would!result!in!a!highlyOconcentrated!market!by!the!

Horizontal*Merger*Guidelines.

The!above!scenarios!lead!the!Technical!Group!to!recommend!setting!the!excessiveOshare!caps!

at!either!(a)!a!fixed!cap!at!30O40%,!or!(b)!a!twoOpart!cap!at!30%!for!the!longOterm!and!a!40O60%!

for!the!short!term!(which!could!lead!to!an!HHI!over!2500!in!the!short!term).!!

Terms!of!Reference!2: Evaluate*the*strengths*and*weaknesses*of*the*proposed*method*

developed*by*the*NMFS*Technical*Group*for*determining*maximum*possible*allowable*

percentage*share*of*quota*ownership.*Review*and*comment*on*the*data*requirements*

necessary*for*applying*the*proposed*methods.**

Among!the!strengths!of!the!Technical!Group’s!proposed!method!for!fisheries!in!general!are:!

• Merger*Guidelines:*Uses!2010!DOJOFTC!Horizontal*Merger*Guidelines,!particularly!a!

threshold!HerfindahlOHirshmann!Index!of!2500,!which!is!the!gold!standard!for!analyzing!

competition!in!the!United!States!and!abroad.!Thus,!it!brings!the!problem!into!a!class!of!

more!generalizable!situations!for!which!ready!comparison!can!be!made!across!fisheries!

and!nonOfishery!cases.!

• Inclusion*of*nonSSCOQ*Fisheries:*Considers!the!effect!of!a!competitive!fringe!as!well!as!

the!effects!of!state!fisheries!and!imports!in!determining!the!relevant!market!and,!

therefore,!the!relevant!market!shares!which!are!bounded!from!below!by!the!TAC!

shares.!The!larger!the!relevant!market!or!degree!of!demand!substitution!from!outside!

the!fisheries!area,!the!greater!the!allowable!excessiveOshare!cap.!

• Efficiency*Consideration:*Recognizes,!although!not!explicitly!incorporating,!the!

importance!of!potential!processing!and!harvesting!efficiency!effects!from!increased!

concentration.!Requiring!three!‘efficient’!processors!under!the!suggested!HHI!will!

encourage!economies!of!size!as!well!as!ensuring!a!minimum!degree!of!competition!in!

the!geographic!region!of!the!fisheries,!regardless!of!the!size!of!the!relevant!market!for!

processed!fishery!products.!

Among!the!weaknesses!of!the!methodology!are:!

• Monopsony*Power:*Focusing!on!monopoly!power!sidesteps!the!possibility!of!

monopsony!or!buying!power,!which!seems!to!be!more!relevant!in!many!fisheries.!

Harvesters!and!processors!tend!to!face!an!elastic!demand!for!their!products!as!

wholesale!output!markets!are!often!much!larger!than!the!fisheries.!The!relevant!market!

for!monopsony!power!is!bound!to!be!more!geographically!localized!than!the!output!

market.!Thus,!a!fishery!is!more!likely!to!face!monopsony!power!than!it!does!monopoly!

power.

Part IV. Peer Review: Rigoberto A. Lopez
10

• Efficiency*Effects:!!Underlying!many!of!the!analyses!regarding!industrial!concentration,!

and!the!HHI!in!particular,!is!an!overriding!concern!with!market!power,!particularly!if!it!

results!in!significant!increases!in!the!price!of!output!through!restriction!of!the!use!of!

ITQs,!but!recent!literature!and!even!the!Horizontal*Merger*Guidelines*consider!the!

possibilities!of!factoring!in!efficiencies!that!result!from!mergers!or!increases!in!

concentration.4

!This!issue!is!not!addressed!although,!in!a!unilateral!context,!cost!

reductions!resulting!from!concentration!or!expansion!that!may!be!limited!by!a!cap!may!

reduce!or!even!reverse!a!firm’s!incentive!to!elevate!price.!5

• Numerator*of*Market*Shares:*Quota!control!and!ownership!are!disjoined!from!volume!

processed!in!the!definition!of!market!shares.!Normally,!the!Herfindahl!Index!is!defined!

based!on!market!shares!in!the!output!or!input!market!based!on!transactions!(revenues!

or!expenditures!on!the!input!in!question).!The!current!definition!of!an!excessiveOshare!

cap!separates!ownership!and!control!and!can!yield!a!situation!where!a!single!processor!

processes!2/3!of!the!harvest!but!only!officially!controls!1/3!without!owning!any.!In!the!

standard!literature!a!2/3!purchase!of!the!total!volume!would!be!of!concern.!

• Denominator*of*Market*Shares:*The!relevant!product!and!geographic!markets!are!not!

defined,!although!market!shares!are!computed!as!the!ratio!of!the!quota!or!cap!shares!

divided!by!the!size!of!the!!‘relevant’!!market.!In!other!words,!the!denominator!of!the!

share!expression!becomes!crucial!information!as!the!allowable!excessiveOshare!cap!

increases!with!the!size!of!the!relevant!market.!!

Implementation!of!the!method!proposed!by!the!Technical!Group!requires!at!least!the!following!

data:!

• Quota*ownership*and*control:!Clear!records!of!the!number!of!independent!entities!that!

own!the!quota!and!who!controls!it!through!long!term!contracts!or!through!vertical!

arrangements!(e.g.,!quota!owners!who!also!own!shares!of!processing!firms).!This!is!

crucial!to!compute!the!numerator!of!market!shares!used!in!the!HHI.!

• Processing*volumes*and*capacity:!It!is!standard!also!to!base!HHI!on!actual!market!

transactions!(revenues!or!expenses).!Processing!capacity!also!indicates!the!possibility!of!

fast!entry!that!may!threaten!antiOcompetitive!behavior.!!

• Size*of*the*Relevant*Market:!Data!on!substitutability!of!products!at!the!level!of!demand!

facing!the!fisheries!(primary!processing),!through!customer!surveys!or!through!evidence!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

4 Azzam,!A.!M.!“Measuring!Market!Power!and!CostOEfficiency!Effects!of!Industrial!Concentration.”!J.*Ind.**Econ.!45!

(1997):!377O386.!Focarelli,!D.!and!F.!Panetta.!“Are!Mergers!Beneficial!to!Consumers?!Evidence!from!the!Market!for!

Bank!Deposits.”!Amer.*Econ.*Rev.!93!(2003):!1152O1172.!Bian,!L.!and!D.G.!McFetridge.!“The!Efficiencies!Defense!in!

Merger!Cases:!Implications!of!Alternative!Standards.”!Can.*J.**Econ.!33!(2000):297O318.

5

!DOJOFTC,!Horizontal*Merger*Guidelines,*p.!29.

Part IV. Peer Review: Rigoberto A. Lopez
11

from!econometric!studies!on!crossOprice!elasticities!and!sensitivity!of!demand!to!

imports!and!the!volume!produced!at!other!fisheries!of!species!relevant!to!the!market!in!

question,!is!also!necessary.!!

Other!necessary!data!on!market!structure,!conditions!of!entry,!behavior!of!market!participants,!

and!economies!of!size!are!mentioned!in!the!report!but!are!not!essential!in!the!determination!of!

the!excessiveOshare!methodology!proposed.!Rather,!they!are!supportive!evidence!for!the!

methodology!proposed.!

Terms!of!Reference!3: Evaluate*application*of*the*proposed*methods*to*the*Surfclam/Ocean*

Quahog*ITQ*fishery.*If*there*is*disagreement*with*what*the*NMFS*Technical*Group*

recommended,*clearly*state*that*and*your*reason*why.*

The!economic!entities!in!the!SCOQ!fisheries!are!clearly!three!groups:!harvesters,!primary!

processors,!and!quota!owners!who!can!be!harvesters,!processors,!corporations,!or!other!

economic!agents.!Demand!facing!processors!seems!to!be!fairly!price!elastic,!reflecting!the!fact!

that!upstream!buyers!can!obtain!substitutes!for!SCOQ!fisheries,!at!least!in!the!long!run,!and!

substitution!from!other!clam!species!to!other!forms!of!ingredients.!In!addition,!there!seems!to!

be!a!large!degree!of!backward!integration!of!processing!into!harvesting!which!would!to!a!

certain!degree!obviate!the!potential!monopsony!power!issue.!

An!important!aspect!for!the!applicability!of!the!proposed!method!to!the!SCOQ!fishery!is!that!

currently!fringe!firms!can!be!safely!assumed!to!hold!approximately!10%!of!the!fishery!and!that!

net!imports!(imports!less!exports)!that!compete!domestically!are!in!the!vicinity!of!20O25%.!

Thus,!the!scenarios!presented!by!the!Technical!Group!apply!to!the!case!of!SCOQ!fisheries!

provided!that!nonOSCOQ!fisheries!directly!compete!with!SCOQ!fisheries!in!the!relevant!market.6

Given!the!foregoing,!the!Technical!Group!recommends!a!fixed!excessiveOshare!cap!of!30O40!%!

or,!alternatively,!a!flexible!cap!of!30%!long!term!and!40O60%!short!term.!The!key!number!

emerging!in!the!report!is!a!40%!excessiveOshare!cap,!which!automatically!ensures!independent!

harvest!supply!to!sustain!at!least!three!processors!in!the!market.!

First,!there!is!no!constitutional!basis!to!interpret!“excessive”!solely!based!on!market!power,!or!

in!this!case,!monopoly!power.!If!efficiency!effects!are!strong!(e.g.,!strong!economies!of!scale)!

and!processors!face!a!much!larger!market!than!the!SCOQ!fisheries,!then!efficiency!

considerations!may!be!more!significant!than!faltering!market!power.!As!concentration!affects!

harvesting!and!particularly!processing!costs,!costs!may!be!bound!to!be!affected!more!than!

wholesale!price!paid!to!processors.!In!other!words,!profit!margins!of!processors,!as!determined!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

6

!In!2008,!the!SCOQ!fisheries!supplied!approximately!83!million!pounds,!imports!from!Canada!and!other!countries!

additionally!supplied!approximately!33!million!pounds,!and!exports!accounted!for!13!million!pounds,!according!to!

personal!communication!with!Dr.!Jose!Montanez,!Fishery!Management!Specialist!at!MAFMC.

Part IV. Peer Review: Rigoberto A. Lopez
12

by!price!received!minus!cost,!might!be!importantly!determined!more!by!cost!than!by!their!

influence!on!the!price!they!receive.!!Ultimately,!given!a!potential!tradeOoff!between!price!set!

and!production!cost!from!the!excessiveOshare!cap!in!SCOQ,!what!matters!more!from!an!

antitrust!perspective!is!the!level!of!the!price!set!which!will!also!depend!on!the!passthrough!of!

any!potential!cost!savings.!It!might!be!the!case!that!consolidation!is!necessary!for!survival,!in!

which!case!a!higher!excessiveOshare!cap!might!be!recommended.!

What!might!be!more!useful!for!incorporating!efficiencies!is!the!relationship!between!output!

price!and!the!HHI!induced!by!the!excessiveOshare!cap,!where!the!market!power!test!might!be!a!

5%!increase!in!output!price!(or!a!5%!reduction!in!the!price!paid!to!harvesters)!rather!than!

relying!solely!on!an!effective!HHI!of!2500.!As!the!Horizontal*Merger*Guidelines!suggest,!market!

shares!may!not!fully!reflect!the!competitive!significance!of!firms!in!the!market!and!should!be!

used!in!conjunction!with!other!evidence!of!competitive!effects.7!!

In!conclusion,!I!reckon!that!an!excessiveOshare!cap!for!the!SCOQ!fisheries!of!30O40%!or!the!twoO

part!cap!counterpart!might!be!rather!conservative!estimates!and!that!it!might!not!be!surprising!

that,!considering!efficiency!impacts,!an!excessiveOshare!cap!of!2/3!of!TAC!or!eventually!a!

natural!monopoly!or!monopsony!might!be!preferable.!!

Terms!of!Reference!4:!Evaluate*whether*the*approach*outlined*by*the*NMFS*Technical*group*is*

reasonable*for*setting*excessive*share*limits*in*fisheries*managed*through*catch*shares?*As*part*

of*this*TOR,*comment*on*any*constraints*that*may*hinder*application*of*the*methods*proposed*

by*the*NMFS*Technical*Group.

The!approach!used!by!the!Technical!Group!is!generic!and!is!applicable!to!just!about!any!

fisheries,!provided!accurate!information!is!obtained!on!quota!rights!and!control,!boundaries!of!

the!relevant!markets,!and!efficiency!effects!of!scale!of!operation.!The!first!two!are!essential!to!

compute!the!correct!market!shares!from!which!to!compute!the!HHI!and!impute!the!appropriate!

excessiveOshare!cap!to!induce!a!relevant!HHI!of!2500!in!a!fishery.!!

The!main!constraints!remain!access!to!the!accurate!information!needed!to!appropriately!

implement!the!approach.!Some!of!this!information!may!be!considered!proprietary!and!it!may!

not!be!in!the!best!interest!of!dominant!producers,!for!instance,!to!reveal!all!necessary!

information.!As!in!any!market,!full!and!accurate!information!is!needed!for!markets!to!work!

smoothly.!Asymmetric!information!will!generate!advantages!to!those!who!have!access!to!it!and!

will!make!the!regulator’s!job!more!imprecise!and!difficult.!It!may!also!lead!to!suboptimal!

policies!from!the!perspective!of!a!social!planner.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

7

!DOJOFTC,!Op*cit.

Part IV. Peer Review: Rigoberto A. Lopez
13

Terms!of!Reference!5:!Provide*any*recommendations*for*further*improvement.*

The!report!relies!on!the!legal!foundation!of!protecting!against!market!power!under!any!

conceivable!market!condition!and!also!relies!on!a!“blunt”!instrument,!i.e.!an!excessiveO!share!

cap.!This!is!accomplished!by!tying!share!caps!to!market!shares,!and!hence,!to!market!structure,!

which!is!bound!to!affect!market!conduct!and!performance.!However,!the!same!market!

structure!can!lead!to!a!variety!of!performance!outcomes,!i.e.,!price!levels,!priceOcost!margins,!

cost!efficiency,!and!social!welfare.!!

Further!recommendations!fall!into!two!areas:!(1)!consideration!of!monopsony!power,!

particularly!if!monopoly!power!seems!weak;!and!(2)!consideration!of!efficiency!effects!of!

excessiveOshare!caps!that!may!correspond!to!high!HHI!levels,!possibly!beyond!2500.!!

In!considering!the!lack!of!focus!on!monopsony!power!case,!and!in!view!of!the!intended!

application!of!the!methodology,!consider!a!fisheryOprocessing!industry!consisting!of!N*firms!

converting!raw!fish!into!fish!products!for!the!wholesale!market.!For!simplicity,!assume!fixed!

proportions!between!the!fish!input!and!the!output!and!that!each!firm!sells!output!in!a!

competitive!market!and!buys!nonOfish!inputs!also!in!a!competitive!market.!!!Let! !denote!the!

raw!fish!bought!by!the! processor!and!let!the!total!amount!bought!by!all!processors!be!given!by!

.!A!processor’s!profit!maximization!problem!is!given!by!

,!where! !is!the!wholesale!price!of!the!processed!fish!product,! is!the!

per!unit!processing!cost,!and! !is!the!price!paid!to!fish!harvesters.!!To!maximize!profits,!the!

processors!set!a!price!for!fish!so!that!their!net!value!of!marginal!product,! ,!equals!

their!marginal!input!cost,! ,!where !is!a!measure!of!perceived!

coordination!across!processors,!market!share!is! ;!the!reaction!of!other!firms!is!given!by!!

;!and! !is!the!price!elasticity!of!harvesters’!supply.!At!

equilibrium,!given!our!assumptions, since!all!processors!are!assumed!to!face!the!same!

!and!pay! !to!the!harvesters.!One!point!here!is!that!not!only!market!shares!collectively!

determine!the!price!paid!to!harvesters!but!also!processing!efficiency!and!the!degree!of!

coordination!among!processors.8

!!

The!Technical!Report!relates!the!price!of!the!quota!as!prima*facie*evidence!of!market!power.!It!

argues!that!a!competitive market!equilibrium!with!a!nonObinding!TAC!results!essentially!in!a!zero!

quota!price!as!the!competitive!market,!not!TAC,!determines!market!equilibrium!and!therefore!

the!price!of!fish!equals!the!marginal!cost!of!harvesting.!Alternatively,!a!monopoly!equilibrium!or!a!

competitive!market!with!a!binding!TAC!(below!market!equilibrium)!results!in!a!positive!quota!

price!because!the!price!of!fish!exceeds!the!cost!of!harvesting.!Currently!and!in!the!last!few!years,!

TAC!has!not!been!binding!as!there!has!been!surplus!quota!and!the!price!of!the!quota!has!been!

neglible.!An!alternative!explanation!is!given!to!those!in!the!report.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

8

!For!similar!models,!see!Azzam!(1997)!and!Lopez!and!You!(1993),!Op.*Cit.

Part IV. Peer Review: Rigoberto A. Lopez
14

Figure!1!illustrates!the!case!of!monopsony!equilibrium!instead!of!a!competitive!equilibrium!(point!

C)!where!there!is!a!nonObinding!TAC!(TAC!or!a!more!constraining!TAC’).!If,!as!stated!before,!the!

‘free’!market!equilibrium!is!not!a!competitive!equilibrium!but!a!monopsonistic!one!where!buyers!

have!market!power!over!harvesters!or!independent!quota!holders,!then!it!is!possible!that!a!nonO

binding!quota!is!partially!the!result!of!constraining!the!use*of!quotas!rather!than!withholding!

quota!from!the!supply!side;!however,!the!surplus!quota!may!in!this!case!have!a!neglible!price,!not!

necessarily!a!positive!price!as!stated!in!the!case!presented!in!the!report.!This!equilibrium!occurs,!

as!shown!above,!where!the!net!value!of!marginal!product!equals!the!marginal!input!cost!at!point!

A!in!Figure!1,!resulting!in!a!nonOcompetitive!margin!that!accrues!to!processors,!depressing!the!

price!of!fish!to!the!harvester!and!resulting!in!a!zero!quota!price!at!the!margin.!In!the!case!that!

quota!holders!exercise!monopoly!power,!as!in!the!report!(e.g.,!Figure!5),!then!equilibrium!occurs!

at!point!B!but!the!quota!would!have!a!positive*price!reflected!by!the!difference!between!the!

higher!price!at!point!A!and!the!harvesting!cost!at!point!B,!also!constraining!volume!below!the!

competitive!level.!!Thus,!the!price!of!the!quota!depends!on!the!type!of!market!power!considered,!

structure!of!quota!rights!and!vertical!integration.!In!the!case!of!a!monopsony,!where!quota!

owners!also!own!processing!facilities,!transactions!will!give!priority!to!those!vertically!integrated!

or!who!will!enter!into!a!vertical!agreement!with!a!nonOcompete!clause.!This!would!be!

disadvantageous!to!independent!quota!owners!who!would!be!likely!to!be!the!ones!left!out!with!a!

zero!quota!price!if!TAC!is!nonObinding.!!

Part IV. Peer Review: Rigoberto A. Lopez
15

Given!the!foregoing,!the!following!is!recommended:!

• Focus!more!on!the!potential!monopsony!power!effects!rather!than!just!monopoly!

power,!explicitly!considering!alternative!vertical!coordination!arrangements.!

Contrary!to!traditional!thinking,!which!only!considered!market!power!effects!from!increased!

market!concentration,!concentration!can!also!lead!to!significant!efficiency!gains!through!

redistribution!of!output!toward!more!efficient!(e.g.,!lower!cost)!firms,!resulting!in!a!potential!

tradeOoff!between!market!power!and!efficiency.!!

In!considering!the!lack!of!focus!on!efficiency!effects,!consider!that!The Horizontal*Merger*

Guidelines,!in!addition!to!prescribing!an!HHI!of!2500,!also!provide!a!performance!outcome:!the!

resulting!increase!(decrease!in!a!monopsonistic!situation)!in!price!should!be!less!than!5%!

relative!to!a!benchmark!such!as!the!competitive!outcome.!A!suggestion!for!further!

improvement!is!to!focus!more!broadly!on!the!balance!of!market!power!and!efficiency.!The!

problem!with!market!power!is!price.!If!all!one!wants!to!avoid!is!market!power,!there!is!a!danger!

of!overlooking!efficiency!effects!that!may!be!crucial!for!the!survival!of!the!industry,!particularly!

when!demand!is!depressed!due!to!economic!or!competitive!conditions!brought!about!from!

outside!the!fishery!area.!Why!should!two!fisheries,!one!with!strong!economies!of!scale!and!one!

without,!have!the!same!HHI!prescription?!

Given!the!foregoing,!the!following!is!recommended:!

• Focus!more!on!potential!price!effects!rather!than!just!HHI,!explicitly!considering!

harvesting!and!processing!efficiency!effects.!

To!illustrate,!Figure!2!shows!an!industry!equilibrium!in!which!market!power!increases!and!

industry!marginal!cost!decreases!with!an!increase!in!HHI!(from!HHI0*to*HHI1).!Market!

equilibrium!occurs!when!marginal!revenue!MR*equals!marginal!cost!MC*at!a!given!level!of!HHI. 9

!!

At!industry!equilibrium,!the!increase!in!concentration!causes!an!increase!in!market!power!that!

is!more!than!offset!by!an!increase!in!efficiency!by!redistributing!output!to!the!most!efficient!

firms,!thus!resulting!in!a!lower!output!price!P*and!an!expansion!of!output!from!Q0*to!Q1,!which!

would!be!beneficial!to!consumers.!!The!point!is!that!the!report!seems!to!imply!that!at!the!

moment!market!power!is!either!nonOexistent!or!very!limited!(nearOzero!price!for!the!quota).!If!

that!is!the!case!then,!efficiency!considerations!might!be!given!greater!weight!as!long!as!they!

can!be!substantiated.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

9 See!Lopez,!R.A.!and!C.!LirónOEspaña.!"Social!Welfare!and!the!OligopolyOEfficiency!Tradeoff!in

U.S.!Food!Processing:!A!Note."!J.*Agric.*Food*Ind.**Org.*1(2003):!!Article!5!(10!pages).!Available!from!

http://www.bepress.com/jafio/vol1/iss1/art5.!

Part IV. Peer Review: Rigoberto A. Lopez
16

Another!improvement,!mentioned!in!the!report,!is!collecting!information!on!the!shadow!price!

of!the!quota,!either!through!creating!an!auction!mechanism!to!reveal!prices!or!by!soliciting!this!

information!explicitly!from!quota!holders.!

To!conclude,!public!policy!to!restrain!excessive!market!concentration!via!excessiveOshare!caps!

or!by!other!means!is!commonplace!in!nonOfish!U.S.!markets!and!has!been!the!focus!of!antitrust!

and!competition!policy!for!many!years!particularly!focused!on!market!concentration.!When!

evaluating!excessiveOshare!caps,!the!ultimate!issue!is!not!only!whether!adverse!competitive!

effects!have!resulted!from!ongoing!concentration,!but!whether!such!effects!are!likely!to!arise!in!

the!future!and!if!excessiveOshare!caps!can!deter!such!trends!without!harming!market!

performance!and!competitiveness.!!

Part IV. Peer Review: Rigoberto A. Lopez
17

Appendix!1:!!Bibliography!of!Materials!Provided

Mitchell,!Glenn,!Steven!Peterson,!and!Robert!Willig.!Recommendations*for*ExcessiveSShare*Limits*in*the*

Surclam*and*Ocean*Quahog*Fisheries.*Compass!Lexecon,!May!3,!2011.

MidOAtlantic! Fishery! Management! Council! in! cooperation! with! National! Marine! Fisheries! Service.!

Overview* of* the* Surfclam* and*Ocean*Quahog* Fisheries* and*Quota* Considerations* for* 2011,* 2012,* and*

2013.!Dover,!Delaware,!April!2010.

Part IV. Peer Review: Rigoberto A. Lopez
18

Appendix!2:!!Statement!of!Work!for!Dr.!Rigoberto!Lopez

External!Independent!Peer!Review!by!the!Center!for!Independent!Experts

Evaluation!of!excessive!shares!study!in!the!

Mid9Atlantic!surfclam!and!ocean!quahog!ITQ!fishery

Scope!of!Work!and!CIE!Process:!!The!National!Marine!Fisheries!Service’s!(NMFS) Office!of!Science!and!

Technology!coordinates!and!manages!a!contract!providing!external!expertise!through!the!Center!for!

Independent!Experts!(CIE)!to!conduct!independent!peer!reviews!of!NMFS!scientific!projects.!The!

Statement!of!Work!(SoW)!described!herein!was!established!by!the!NMFS!Project!Contact!and!

Contracting!Officer’s!Technical!Representative!(COTR),!and!reviewed!by!CIE!for!compliance!with!their!

policy!for!providing!independent!expertise!that!can!provide!impartial!and!independent!peer!review!

without!conflicts!of!interest.!!CIE!reviewers!are!selected!by!the!CIE!Steering!Committee!and!CIE!

Coordination!Team!to!conduct!the!independent!peer!review!of!NMFS!science!in!compliance!the!

predetermined!Terms!of!Reference!(ToRs)!of!the!peer!review.!!Each!CIE!reviewer!is!contracted!to!deliver!

an!independent!peer!review!report!to!be!approved!by!the!CIE!Steering!Committee!and!the!report!is!to!

be!formatted!with!content!requirements!as!specified!in!Annex!1.!!This!SoW!describes!the!work!tasks!and!

deliverables!of!the!CIE!reviewer!for!conducting!an!independent!peer!review!of!the!following!NMFS!

project.!!Further!information!on!the!CIE!process!can!be!obtained!from!www.ciereviews.org.!

Project!Description:!!Recently,!the!MidOAtlantic!Fishery!Management!Council!has!been!crafting!

Amendment!15!to!the!Surfclam!and!Ocean!Quahog!Fishery!Management!Plan,!and!as!part!of!the!

Amendment,!has!been!attempting!to!define!an!"excessive!share"!threshold!for!the!Individual!

Transferable!Quota!(ITQ)!portion!of!the!fishery.!Regarding!share!accumulation,!section!303A(c)(5)(D)!of

the!2006!reauthorized!MagnusonOStevens!Act!states!that!ITQ!privilege!programs!should!ensure!that!

limited!access!privilege!holders!do!not!acquire!an!excessive!share!of!the!total!limited!access!privileges!in!

the!program.!In!addition,!National!Standard!4!of!the!Magnuson!Act!(16!U.S.C.!1851(a)(4))!requires!that!

fishing!privilege!allocations!be!carried!out!so!that!"no!particular!individual,!corporation,!or!other!entity!

acquires!an!excessive!share!of!such!privileges."!!During!the!course!of!the!Council’s!deliberations on!the!

market!power!excessive!share!issue,!it!was!decided!that!additional!expertise!was!needed!to!examine!the!

economic!rationale!behind!the!excessive!share!determination,!and!to!recommend!an!excessive!share!

level,!if!needed.!In!order!to!provide!this!expertise,!a!Technical!Group!of!Experts!(not!the!CIE)!is!being!

assembled!to!give!advice!on!the!appropriate!excessive!share!threshold!for!the!surfclam!and!ocean!

quahog!ITQ!system.!This!Technical!Group!will!assess!available!models!for!evaluating!the!presence!of!

market!power,!and!make!recommendations!with!regard!to!their!appropriateness!for!setting!excessive!

catch!share!limits.

The!work!being!performed!by!this!Technical!Group!could!be!controversial.!It!will!establish!methods!for!

determining!excessive!shares!which!might!be!applied!in!other!fisheries!(besides!surfclams!and!ocean!

quahogs).!With!the!movement!by!NMFS!to!catch!share!systems,!determining!what!constitutes!an!

excessive!share!and!whether!limits!need!to!be!put!in!place!is!extremely!important!because!excessive!

Part IV. Peer Review: Rigoberto A. Lopez
19

share!may!lead!to!market!power.!Market!power!can!lead!to!the!ability!to!influence!price!in!either!the!

final!product!market!or!for!factors!of!production!(i.e.!the!fish!resource).!!Examination!of!market!share!

has!never!been!formally!investigated!in!this!fishery.!!Thus!the!study!by!the!Technical!Group!will!be!

innovative!and!significant.

After!the!Technical!Group!has!delivered!its!recommendations,!a!peer!review!(by!the!CIE)!needs!to!take!

place!to!either!endorse!or!reject!the!findings!from!the!Technical!Group.!!This!twoOstep!process!was!

agreed!to!by!the!Northeast!Fisheries!Science!Center!(NEFSC)!and!the!MidOAtlantic!Fishery!Management!

Council!(MAFMC).

The!Terms!of!Reference!(ToRs)!of!the!peer!review!are!attached!in Annex!2.!!The!tentative!agenda!of!the!

panel!review!meeting!is!attached!in!Annex!3.

Requirements!for!CIE!Reviewers:!Three!CIE!reviewers!shall!conduct!an!impartial!and!independent!peer!

review!in!accordance!with!the!SoW!and!ToRs!herein.!CIE!reviewers!shall!have!working!knowledge!and!

recent!experience!in!the!application!of!economics,!with!specific!expertise!in!industrial!organization.!!The!

reviewers!should!have!theoretical!and!empirical!expertise!in!the!economics!of!market!

structure/conduct/performance,!particularly!monopoly/oligopsony,!antitrust,!firm!strategy,!and!

government!regulation.!Experience!conducting!studies!using!econometric!models!and/or!indexObased!

assessments!of!market!concentration!and!market!power!would!be!useful.!Experience!with!markets!

operating!under!government!permits!such!as!production!permit!or!marketing!orders!in!agriculture,!

bandwidth!for!TV!and!radio,!and!tradable!permit!systems!like!ITQ’s!in!fisheries!would!be!desirable.!

Empirical!studies!of!market!structure!in!renewable!resource!industries!would!be!desirable!as!would!an!

understanding!of!the!statutory!context!for!antitrust!regulation.!Each!CIE!reviewer’s!duties!shall!not!

exceed!a!maximum!of!14!days!to!complete all!work!tasks!of!the!peer!review!described!herein.

Not!covered!by!the!CIE,!the!CIE!chair’s!duties!should not!exceed!a!maximum!of!14!days!(i.e.,!several!days!

prior!to!the!meeting!for!document!review;!the!CIE!panel!meeting!in!Woods!Hole;!several!days!following!

the!open!meeting!for!SARC!Summary!Report!preparation).!

Location!of!Peer!Review:!!Each!CIE!reviewer!shall!conduct!an!independent!peer!review!during!the!panel!

review!meeting!scheduled!in!Woods!Hole,!Massachusetts!during!21O23!June!2011.

Statement!of!Tasks:!!Each!CIE!reviewer!shall!complete!the!following!tasks!in!accordance!with!the!SoW!

and!Schedule!of!Milestones!and!Deliverables!herein.

1.!Prior!to!the!Peer!Review!Meeting:!!

Upon!completion!of!the!CIE!reviewer!selection!by!the!CIE!Steering!Committee,!the!CIE!shall!provide!the!

CIE!reviewer!information!(full!name,!title,!affiliation,!country,!address,!email,!FAX)!to!the!COTR,!who!

forwards!this!information!to!the!NMFS!Project!Contact!no!later!the!date!specified!in!the!Schedule!of!

Milestones!and!Deliverables.!!The!CIE!is!responsible!for!providing!the!SoW!and!ToRs!to!the!CIE!

reviewers.!!The!NMFS!Project!Contact!is!responsible!for!providing!the!CIE!reviewers!with!the!background!

documents,!reports,!foreign!national!security!clearance,!and!other!information!concerning!pertinent

Part IV. Peer Review: Rigoberto A. Lopez
20

meeting!arrangements.!!The!NMFS!Project!Contact!is!also!responsible!for!providing!the!Chair!(see!

below)!a!copy!of!the!SoW,!background!documents!and!final!report!in!advance!of!the!panel!review!

meeting.!!Any!changes!to!the!SoW!or!ToRs!must!be!made!through!the!COTR!prior!to!the!commencement!

of!the!peer!review.

Foreign!National!Security!Clearance:!!When!CIE!reviewers!participate!during!a!panel!review!meeting!at!a!

government!facility,!the!NMFS!Project!Contact!is!responsible!for!obtaining!the!Foreign!National!Security!

Clearance!approval!for!CIE!reviewers!who!are!nonOUS!citizens.!!For!this!reason,!the!CIE!reviewers!shall!

provide!requested!information!(e.g.,!first!and!last!name,!contact!information,!gender,!birth!date,!

passport!number,!country!of!passport,!travel!dates,!country!of!citizenship,!country!of!current!residence,!

home!country,!and!FAX!number)!to!the!NMFS!Project!Contact!for!the!purpose!of!their!security!

clearance,!and!this!information!shall!be!submitted!at!least!30!days!before!the!peer!review!in!accordance

with!the!NOAA!Deemed!Export!Technology!Control!Program!NAO!207O12!regulations!available!at!the!

Deemed!Exports!NAO!website:!!!http://deemedexports.noaa.gov/sponsor.html).!!

PreOreview!Background!Documents:!!Approximately!two!weeks!before!the!peer!review,!the!NMFS!

Project!Contact!will!send!(by!electronic!mail!or!make!available!at!an!FTP!site)!to!the!CIE!reviewers!the!

necessary!background!information!and!reports!for!the!peer!review.!!In!the!case!where!the!documents!

need!to!be!mailed,!the!NMFS!Project!Contact!will!consult!with!the!CIE!Lead!Coordinator!on!where!to!

send!documents.!!CIE!reviewers!are!responsible!only!for!the!preOreview!documents!that!are!delivered!to!

the!reviewer!in!accordance!to!the!SoW!scheduled!deadlines!specified!herein.!!The!CIE!reviewers!shall!

read!all!documents!in!preparation!for!the!peer!review.

2.!During!the!Open!Meeting

Panel!Review!Meeting:!!Each!CIE!reviewer!shall!conduct!the!independent!peer!review!in!accordance!

with!the!SoW!and!ToRs,!and!shall!not!serve!in!any!other!role!unless!specified!herein.!!Modifications!to!

the!SoW!and!ToRs!can!not!be!made!during!the!peer!review,!and!any!SoW!or!ToRs!modifications!prior!

to!the!peer!review!shall!be!approved!by!the!COTR!and!CIE!Lead!Coordinator.!!Each!CIE!reviewer!shall!

actively!participate!in!a!professional!and!respectful!manner!as!a!member!of!the!meeting!review!panel,!

and!their!peer!review!tasks!shall!be!focused!on!the!ToRs!as!specified!herein.!!The!NMFS!Project!Contact!

is!responsible!for!any!facility!arrangements!(e.g.,!conference!room!for!panel!review!meetings!or!

teleconference!arrangements).!!The!NMFS!Project!Contact!is!responsible!for!ensuring!that!the!Chair!

understands!the!contractual!role!of!the!CIE!reviewers!as!specified!herein.!!The!CIE!Lead!Coordinator!can!

contact!the!Project!Contact!to!confirm!any!peer!review!arrangements,!including!the!meeting!facility!

arrangements.

(Review!Meeting!Chair)

A!member!of!the!MidOAtlantic!Management!Council!Scientific!and!Statistical!Committee!will!serve!as!

Chairperson.!The!role!of!the!Chair!is!to!facilitate!the!meeting,!which!includes!coordination!of!

presentations!and!discussions,!and!making!sure!all!Terms!of!Reference!are!reviewed.!Additionally,!the!

Chair!shall!prepare!the!summary!report!from!the!meeting.!During!the!meeting!the!Chair!can!ask!

Part IV. Peer Review: Rigoberto A. Lopez
21

questions!or!make!statements!to!clarify!discussions,!and!he!can!move!the!discussion!along!to!ensure!

that!the!CIE!reviewers!address!all!of!the!TORs.

(CIE!Reviewers)

Each!CIE!reviewer!shall!participate!as!a!peer!reviewer!in!a!panel!discussion!centered!on!a!report!

furnished!to!NMFS!by!the!Technical!Group!of!Experts!regarding!excessive!shares!in!the!surfclam!and!

ocean!quahog!fishery.!Reviewers!are!to!determine!whether!the!findings!of!the!Technical!Group!are!valid!

given!the!Terms!of!Reference!provided!to!the!expert!panel.!If!reviewers!consider!the!recommendations!

of!the!expert!panel!to!be!inappropriate,!the!reviewers!should!recommend!an!alternative.!!

During!the!question!and!answer!period,!a!representative!of!the!NMFS!expert!panel!will!be!available!to!

answer!questions!about!the!report.!The!CIE!members!can!provide!feedback!to!the!expert!panel!member!

at!that!time.

(Other!Panel!Members)

A!representative!from!the!MidOAtlantic!Fishery!Management!Council!staff,!and!the!Northeast!Fisheries!

Science!Center!Social!Sciences!Branch!will!be!available!during!the!meeting!to!provide!any!additional!

information!requested!by!the!CIE!reviewers.!Other!panel!members!may!assist!the!Chair!prepare!the!

summary!report,!if!requested.

3.!After!the!Open!Meeting

!!Contract!Deliverables!O!Independent!CIE!Peer!Review!Reports:!!Each!CIE!reviewer!shall!complete!an!

independent!peer!review!report!in!accordance!with!the!SoW.!!Each!CIE!reviewer!shall!complete!the!

independent!peer!review!according!to!required!format!and!content!as!described!in!Annex!1.!!Each!CIE!

reviewer!shall!complete!the!independent!peer!review!addressing!each!ToR!as!described!in!Annex!2.

Other!Tasks!–!Contribution!to!Summary!Report:!!The!Chair!from!the!SSC!and!CIE!reviewers!will!prepare!

the!Peer!Review!Summary!Report.!!Each!CIE!reviewer will!discuss!whether!they!hold!similar!views!on!

each!Term!of!Reference!and!whether!their!opinions!can!be!summarized!into!a!single!conclusion!for!all!or!

only!for!some!of!the!Terms!of!Reference.!!For!terms!where!a!similar!view!can!be!reached,!the!Summary!

Report!will!contain!a!summary!of!such!opinions.!In!cases!where!multiple!and/or!differing!views!exist!on!

a!given!Term!of!Reference,!the!Report!will!note!that!there!is!no!agreement!and!will!specify!O!in!a!

summary!manner!–!what!the!different!opinions!are!and!the!reason(s)!for!the!difference!in!opinions.!

The!Chair’s!objective!during!this!Summary!Report!development!process!will!be!to!identify!or!facilitate!

the!finding!of!an!agreement!rather!than!forcing!the!panel!to!reach!an!agreement.!The!Chair!will!take!the!

lead!in!editing!and!completing!this!report.!The!Report!(please!see!Annex!1!for!information!on!contents)!

should!address!whether!each!Term!of!Reference!was!completed!successfully.!For!each!Term!of!

Reference,!this!report!should!state!why!that!Term!of!Reference!was!or!was!not!completed!successfully.

Specific!Tasks!for!CIE!Reviewers:!!The!following!chronological!list!of!tasks!shall!be!completed!by!each!CIE!

reviewer!in!a!timely!manner!as!specified!in!the!Schedule!of!Milestones!and!Deliverables.!

Part IV. Peer Review: Rigoberto A. Lopez
22

1) Conduct necessary pre-review preparations, including the review of background material 

and reports provided by the NMFS Project Contact in advance of the peer review. 

2) Participate during the panel review meeting at the Northeast Fisheries Science Center, 

Woods Hole, MA laboratory during 21-23 June, 2011 as specified herein, and conduct an 

independent peer review in accordance with the ToRs (Annex 2). 

3) No later than 7 July, 2011, each CIE reviewer shall submit an independent peer review 

report addressed to the “Center for Independent Experts”, and the report should be sent to 

Mr. Manoj Shivlani, CIE Lead Coordinator, via email to shivlanim@bellsouth.net, and 

Dr. David Sampson, CIE Regional Coordinator, via email to 

david.sampson@oregonstate.edu. Each CIE report shall be written using the format and 

content requirements specified in Annex 1, and address each ToR in Annex 2. 

Schedule!of!Milestones!and!Deliverables:!!CIE!shall!complete!the!tasks!and!deliverables!described!in!

this!SoW!in!accordance!with!the!following!schedule.!

17 May 2011 CIE sends reviewer contact information to the COTR, who then sends 

this to the NMFS Project Contact

7 June 2011 NMFS Project Contact sends the CIE Reviewers the pre-review 

documents

 21-23 June 2011 Each reviewer participates and conducts an independent peer review 

during the panel review meeting

 7 July 2011 CIE reviewers submit draft CIE independent peer review reports to the 

CIE Lead Coordinator and CIE Regional Coordinator

14 July 2001 Draft of Summary Report, reviewed by all CIE reviewers, due to panel 

Chair *

21 July 2001 Panel Chair send final Summary Report, approved by CIE reviewers, to 

NEFSC contact

21 July 2011 CIE submits CIE reports to the COTR

28 July 2011 The COTR distributes the final CIE reports to the NMFS Project 

Contact and regional Center Director

*The Summary report will not be submitted, reviewed, or approved by the CIE 

Modifications!to!the!Statement!of!Work:!!Requests!to!modify!this!SoW!must!be!approved!by!the!

Contracting!Officer!at!least!15!working!days!prior!to!making!any!permanent!substitutions.!!The!

Contracting!Officer!will!notify!the!COTR!within!10!working!days!after!receipt!of!all!required!information!

of!the!decision!on!substitutions.!!The!COTR!can!approve!changes!to!the!milestone!dates,!list!of!preO

review!documents,!and!ToRs!within!the!SoW!as!long!as!the!role!and!ability!of!the!CIE!reviewers!to!

Part IV. Peer Review: Rigoberto A. Lopez
23

complete!the!deliverable!in!accordance!with!the!SoW!is!not!adversely!impacted.!!The!SoW!and!ToRs!

shall!not!be!changed!once!the!peer!review!has!begun.

Acceptance!of!Deliverables:!!Upon!review!and!acceptance!of!the!CIE!independent!peer!review!reports!

by!the!CIE!Lead!Coordinator,!Regional!Coordinator,!and!Steering!Committee,!these!reports!shall!be!sent!

to!the!COTR!for!final!approval!as!contract!deliverables!based!on!compliance!with!the!SoW!and!ToRs. !As!

specified!in!the!Schedule!of!Milestones!and!Deliverables,!the!CIE!shall!send!via!eOmail!the!contract!

deliverables!(CIE!independent!peer!review!reports)!to!the!COTR!(William!Michaels,!via!

William.Michaels@noaa.gov).

Applicable!Performance!Standards: The!contract!is!successfully!completed!when!the!COTR!provides!

final!approval!of!the!contract!deliverables.!!The!acceptance!of!the!contract!deliverables!shall!be!based!

on!three!performance!standards:!

(1)!each!CIE!report!shall!completed!with!the!format!and!content!in!accordance!with!Annex!1,!

(2)!each!CIE!report!shall!address!each!ToR!as!specified!in!Annex!2,!

(3)!the!CIE!reports!shall!be!delivered!in!a!timely!manner!as!specified!in!the!schedule!of!milestones!and!

deliverables.

Distribution!of!Approved!Deliverables:!!Upon!acceptance!by!the!COTR,!the!CIE!Lead!Coordinator!shall!

send!via!eOmail!the!final!CIE!reports!in!*.PDF!format!to!the!COTR. !The!COTR!will!distribute!the!CIE!

reports!to!the!NMFS!Project!Contact!and!Center!Director.

Support!Personnel:

William!Michaels,!Program!Manager,!COTR)!

NMFS!Office!of!Science!and!Technology

1315!East!West!Hwy,!SSMC3,!F/ST4,!Silver!Spring,!MD!20910

William.Michaels@noaa.gov!! Phone:!301O713O2363!ext!136

Manoj!Shivlani,!CIE!Lead!Coordinator!

Northern!Taiga!Ventures,!Inc.!!

10600!SW!131st!Court,!Miami,!FL!!33186

shivlanim@bellsouth.net!! ! Phone:!305O383O4229

Roger!W.!Peretti,!Executive!Vice!President

Northern!Taiga!Ventures,!Inc.!(NTVI)

22375!Broderick!Drive,!Suite!215,!Sterling,!VA!20166

RPerretti@ntvifederal.com!! ! Phone:!571O223O7717

Key!Personnel:

Part IV. Peer Review: Rigoberto A. Lopez
24

NMFS!Project!Contact:!

John!B.!Walden

Northeast!Fisheries!Science!Center

166!Water!Street,!Woods!Hole,!MA!02536

John.Walden@noaa.gov! ! !

Phone:!508O495O2355

Part IV. Peer Review: Rigoberto A. Lopez
25

Annex 1: Format and Contents of CIE Independent Peer Review Report 

1.!The!CIE!independent!report!shall!be!prefaced!with!an!Executive!Summary!providing!a!concise!

summary!of!the!findings!and!recommendations!in!accordance!with!the!ToRs.!!

2.!The!main!body!of!the!reviewer!report!shall!consist!of!a!Background,!Description!of!the!Individual!

Reviewer’s!Role!in!the!Review!Activities,!Summary!of!Findings!for!each!ToR!in!which!the weaknesses!

and!strengths!are!described,!and!Conclusions!and!Recommendations!in!accordance!with!the!ToRs.

a.!Reviewers!should!describe!in!their!own!words!the!review!activities!completed!during!the!panel!

review!meeting,!including!providing!a!brief!summary!of!findings,!of!the!science,!conclusions,!and!

recommendations.

b.!Reviewers!should!discuss!their!independent!views!on!each!ToR!even!if!these!were!consistent!with!

those!of!other!panelists,!and!especially!where!there!were!divergent!views.

c.!Reviewers!should!elaborate!on!any!points!raised!in!the!Summary!Report!that!they!feel!might!

require!further!clarification.

d.!Reviewers!shall!provide!a!critique!of!the!NMFS!review process,!including!suggestions!for!

improvements!of!both!process!and!products.!!

e.!The!CIE!independent!report!shall!be!a!standOalone!document!for!others!to!understand!the!

weaknesses!and!strengths!of!the!science!reviewed,!regardless!of!whether!or!not!they!read!the!

summary!report.!!The!CIE!independent!report!shall!be!an!independent!peer!review!of!each!ToRs,!and!

shall!not!simply!repeat!the!contents!of!the!summary!report.

3.!The!reviewer!report!shall!include!the!following!appendices:

Appendix!1:!!Bibliography!of!materials!provided!for!review!

Appendix!2:!!A!copy!of!the!CIE!Statement!of!Work

Appendix!3:!!Panel!Membership!or!other!pertinent!information!from!the!panel!review!meeting.

Part IV. Peer Review: Rigoberto A. Lopez
26

Annex 2: Terms of Reference for the Peer Review 

Evaluation!of!excessive!shares!study!in!the!

Mid9Atlantic!surfclam!and!ocean!quahog!ITQ!fishery

The!peer!review!shall!be!conducted!based!on!the!following!Terms!of!Reference!(ToRs):

1.!Describe!the!method!or!process!used!by!the!NMFS!Technical!Group!for!determining!the!maximum!

possible!allowable!percentage!share!of!quota!ownership!that!will!prevent!an!entity!from!obtaining!

market!power.

2.!Evaluate!the!strengths!and!weaknesses!of!the!proposed!method!developed!by!the!NMFS!Technical!

group!for!determining!maximum!possible!allowable!percentage!share!of!quota!ownership.!Review!and!

comment!on!the!data!requirements!necessary!for!applying!the!proposed!methods.!!

3.!Evaluate!application!of!the!proposed!methods!to!the!Surfclam/Ocean!Quahog!ITQ!fishery.!If!there!is!

disagreement!with!what!the!NMFS!Technical!Group!recommended,!clearly!state!that!and!your!reason!

why.

4.!Evaluate!whether!the!approach!outlined!by!the!NMFS!Technical!group!is!reasonable!for!setting!

excessive!share!limits!in!fisheries!managed!through!catch!shares?!As!part!of!this!TOR,!comment!on!any!

constraints!that!may!hinder!application!of!the!methods!proposed!by!the!NMFS!Technical!group.

5.!Provide!any!recommendations!for!further!improvement

Part IV. Peer Review: Rigoberto A. Lopez
27

Appendix!29Annex!3:!!Tentative!Agenda!

Evaluation!of!excessive!shares!study!in!the!

Mid9Atlantic!surfclam!and!ocean!quahog!ITQ!fishery

!Falmouth!and!Woods!Hole,!Massachusetts!during!21O23!June!2011

Tuesday,!June!21.!Holiday!Inn,!Lighthouse!Room,!Jones!Road,!Falmouth,!MA

!!9:0099:15!AM!!

!!!!Opening

!!!!Welcome

!!!!Introduction SSC!Chair

!!!!Agenda

!!!!Conduct!of!Meeting

9:15!–!9:30!!!!!!!!!!Background!and!Need!for!Expert!Panel!Report!–!Lee!Anderson

!!9:30911!!!!!!!!!!!!!!! Report!of!the!NMFS!Expert!Panel!O!NMFS!Expert!Panel!Rep.

11911:15!!!!!!!!!Break

!!11:15!9Noon!!!Review!Terms!of!Reference!!–!CIE!Panel!

!Noon!–!1:15!!!Lunch

1:15!–!3:00!!!!!CIE!Panel!Discussion!–!Terms!of!Reference!#1.!!!!

3:0093:15!!!!!!!!Break

3:1594:00!!!!!!!Public!Comments

4:0094:45!!!!!!!CIE!Panel!Discussion!–!Terms!of!Reference!#2

4:4595:00!!!!!!!!!!!Questions!for!following!day

Wednesday,!June!22. !Holiday!Inn,!Lighthouse!Room,!Jones!Road,!Falmouth,!MA!!

9:0099:30!!!!!Review!any!outstanding!questions!from!previous!day

9:30910:30!!!!!!!!!!CIE!Panel!Discussion!–!Terms!of!Reference!#3

Part IV. Peer Review: Rigoberto A. Lopez
28

10:30910:45!!!!!!!!Break

10:459Noon!!!!!!!!!CIE!Panel!Discussion!–!Terms!of!Reference!#4

Noon91:30!!!!!!!!!Lunch

1:30!–!3:00!!!!!!!!CIE!Panel!Discussion!–!Terms!of!Reference!#5

3:0093:15!!!!!!!!!!!!Break

3:1595:00!!!!!!!!!!!!CIE!Panel!Discussion!–!Outstanding!Issues

Thursday!June!23!Location:!Clark!Conference!Room,!Northeast!Fisheries!Science!Center.

9:00!–!5:00!Report!writing!(Meeting!Closed!to!Public)

Part IV. Peer Review: Rigoberto A. Lopez
29

Appendix!3:!!Panel!Membership

Panel!Chair:!!

James!Wilen,!Professor

Department!of!Agricultural!and!Resource!Economics!

University!of!California!at!Davis!

3102!Social!Sciences!and!Humanities!

One!Shields!Drive

Davis,!CA!95616!

Phone:!(530)!752O1515,!Fax:!(530)!752O5614

wilen@primal.ucdavis.edu

Panel!Members:!

Ragnar!Anderson,!Professor

Department!of!Economics!

University!of!Iceland!

Oddi!v.!Sturlug!out!

IS!O101!Reykjavik,!Iceland!

Phone:!+354O525O4539

ragnara@hi.is

Ani!Katchova,!Assistant!Professor!

Department!of!Agricultural!Economics!

University!of!Kentucky!

320!Barnhart!Building!

Lexington,!KY!40546O0276

Phone:!(859)!257O7269,!Fax:!(859)!323O1913

akatchova@uky.edu

Rigoberto!Lopez,!Professor!and!Head!

Department!of!Agricultural!and!Resource!Economics!

Director!of!the!Zwick!Center!for!Food!and!Resource!Policy!

University!of!Connecticut!

1376!Storrs!Rd.,!Room!318!

Storrs,!CT!06269O4021

Phone:!(860)!486O1921,!Fax:!(860)!486O1932

Rigoberto.Lopez@uconn.edu

Part IV. Peer Review: Rigoberto A. Lopez
Procedures for Issuing Manuscripts

in the

Northeast Fisheries Science Center Reference Document (CRD) Series

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For more information, NEFSC authors should see 

the NEFSC’s online publication policy manual, “Manuscript/abstract/webpage preparation, review, and dissemination: NEFSC author’s guide to policy, process, 

and procedure,” located in the Publications/Manuscript 

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style manual is silent on many aspects of scientific 

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conform with these style manuals. 

The CRD series uses the American Fisheries Society’s guides to names of fishes, mollusks, and decapod 

crustaceans, the Society for Marine Mammalogy’s 

guide to names of marine mammals, the Biosciences 

Information Service’s guide to serial title abbreviations, 

and the ISO’s (International Standardization Organization) guide to statistical terms. 

For in-text citation, use the name-date system. A 

special effort should be made to ensure that all necessary bibliographic information is included in the list 

of cited works. Personal communications must include 

date, full name, and full mailing address of the contact.

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Once your document has cleared the review process, the Editorial Office will contact you with publication needs – for example, revised text (if necessary) and 

separate digital figures and tables if they are embedded 

in the document. Materials may be submitted to the 

Editorial Office as files on zip disks or CDs, email 

attachments, or intranet downloads. Text files should 

be in Microsoft Word, tables may be in Word or Excel, 

and graphics files may be in a variety of formats (JPG, 

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Editorial Office will develop the inside and outside 

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Once both the PDF (print) and Web versions of 

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you to review both versions and submit corrections or 

changes before the document is posted online.

A number of organizations and individuals in the 

Northeast Region will be notified by e-mail of the 

availability of the document online. 
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of the

Northeast Fisheries Science Center

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for the benefit of the nation through their science-based conservation and management and promotion of the 

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Science Center (NEFSC) supports the NMFS mission by “conducting ecosystem-based research and assessments of living marine resources, with a focus on the Northeast Shelf, to promote the recovery and long-term 

sustainability of these resources and to generate social and economic opportunities and benefits from their use.” 

Results of NEFSC research are largely reported in primary scientific media (e.g., anonymously-peer-reviewed 

scientific journals). However, to assist itself in providing data, information, and advice to its constituents, the 

NEFSC occasionally releases its results in its own media. Currently, there are three such media:

NOAA Technical Memorandum NMFS-NE -- This series is issued irregularly. The series typically includes: data reports of 

long-term field or lab studies of important species or habitats; synthesis reports for important species or habitats; annual reports 

of overall assessment or monitoring programs; manuals describing program-wide surveying or experimental techniques; literature 

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bibliographies. All issues receive internal scientific review and most issues receive technical and copy editing.

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Resource Survey Report (formerly Fishermen’s Report) -- This information report is a regularly-issued, quick-turnaround report on 

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MEDIA

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