The Packaged Ice Monopoly

July 1, 2008

Three companies in packaged ice (i.e., the sort you pick up at a convenience store or gas station on your way to a barbecue or beach party) are facing conspiracy and collusion charges (permalink ice.pdf) under Sherman. Now, wherever I go packaged ice is somewhere between $1 and $2 a bag. That seems pretty reasonable to me, but let’s examine:

“The ice companies behaved as you would expect market allocators to behave: They basically charged whatever they wanted for ice because there was no competition,” said Kendall Zylstra, a suburban Philadelphia lawyer who filed the first suit in Detroit on behalf of suburban Philadelphia gas retailers that sell ice.

Zylstra would have us believe that packaged ice sells for $100 a bag.

I know a bit about anti-trust regulation, and a bit about economics, and a bit about cartels. This is the all-important consideration: cartels are inherently unstable, because the incentive exists for each member to reneg on the illicit agreement.

In all fairness, I know practically nothing about the wholesale market for ice, but consider the actual problem here. There is an alleged monopoly on the production and transportation of ice.

If, in-fact, there was “no competition”, it’s not primarily because three companies conspired and colluded to keep prices high.

If it’s not possible to compete with one of three oligopolistic companies, it’s not because the actual market forces for the production, packaging, and transportation of ice are atypical and require some specific degree of business acumen, and a penchant for bearing greater-than-normal risk. What’s infintely more likely is that legislation and regulation are prohibitive, and new entrants have a difficult time establishing themselves.


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