Cold Case Files: The Athenian Grain Merchants, 386 B.C

Food price increases have always been politically sensitive. Price spikes like those that have occurred recently create the demand for action on the part of government to alleviate the problem. Yet, government intervention can often do more harm than good. This article examines one such example of a counterproductive response that occurred in 388 B.C. in Athens, Greece. In response to a negative supply shock to the grain market, regulators encouraged grain importers to form a buyers' cartel (monopsony), hoping that it would reduce retail prices by first lowering wholesale grain prices. In reality, the decrease in wholesale prices resulted in a decrease in the willingness of producers in other regions to supply grain to Athens, and retail grain prices increased substantially. Grain importers soon found themselves on trial for their lives in what is probably the earliest recorded antitrust trial. This article uses the information presented at that trial and other contemporary sources to evaluate the grain merchants' actions. More generally, it analyses the impact of a buyer's cartel or monopsony on prices and consumption. While most economic analysis of the effects of market power have focused on monopoly power (a single seller of a good) or cartels among sellers, there has always remained some degree of interest in monopsony power (a single buyer) or collusion among several buyers. This interest has traditionally been confined to three different areas: "company towns" where a single employer is the sole employer of labor; large retailers, such as AP and middlemen or wholesalers in agricultural markets, such as grain elevator operators, where geography or transportation costs limit the number of potential customers interested in purchasing large-scale commercial levels of output. In recent years, there has also been growing concern, whether legitimate or not, about the potential for monopsony power among large-scale purchasers of health care services. There have been several U.S. antitrust cases related to monopsony or monopsony power. Blair and Harrison (1993: 4-11) discuss cases related to bid rigging at auctions, merchant collusion in negotiating bank card fees with credit card companies, collusion among colleges regarding financial aid, and collusion in baseball's free agent market. They note that U.S. antitrust cases involving collusion among buyers go back to at least 1924, when 178 poultry buyers in New York appointed a committee of seven individuals who would determine--or "stabilize"--each day's market price for poultry. In this article, I examine what is likely to be one of the earliest recorded antitrust cases, a ease that involves collusion among grain buyers in ancient Athens. At the urging of a regulator, grain importers formed a cartel and colluded to lower the price paid to those who were exporting grain to Athens. Like nearly all attempts to establish non-market prices, this attempt generated serious negative unintended consequences for the Athenians. Much like present-day U.S. dependence on imported petroleum, the Athenians were dependent on grain imports in the fourth century B.C. Athens's relatively large population and the small area of land available for growing grain in Attica meant Athens had to depend heavily on imported grain. Disruptions in the flow of grain imports could cause grain prices to spike. The cause of the disruption in grain markets in 388 B.C. is unclear. It could have been a bad harvest in some regions that were net exporters of grain or simply a blockade or invasion of the city-states supplying Athens with grain that occurred when Persia switched to Sparta's side (and against Athens) in the Corinthian War. However, the effects of the disruption are clear. …