Cold case files: the Athenian grain merchants, 386 B.C.

• Author: Dunham, Wayne R.
• Position: Report

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 A&P in the first half of the 20th century, where the retailer's purchases represent a sufficiently large share of the overall market that it allegedly has some power to dictate wholesale prices; 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. There was a supply shock adversely affecting the amount of grain being supplied to Athens, resulting in higher grain prices.

Those higher prices were deeply unpopular and at least one of the Athenian officials who was charged with regulating the sales of grain (the sitophylakes) developed an "innovative" policy for reducing grain prices. He would allow the grain merchants (the sitopolai, also translated as corn dealers (1)) to collude when negotiating with the importers (the emporoi, the masters of the ships delivering grain to Athens) to purchase grain. The plan went seriously awry and after narrowly avoiding summary execution by a decree of the Athenian council, the grain merchants soon found themselves on trial for their lives for hoarding grain and "profiteering"--essentially selling grain for more than the allowed mark-up. Kotsiris (1988: 451) suggests that the trial that followed is in all likelihood one of the earliest, if not the earliest, recorded instance of an antitrust trial.

Although there is some independent information related to the legal and regulatory environment with respect to grain in Athens, the only source of knowledge for this particular set of events is a contemporaneous speech that Lysias, a Greek orator, wrote for an unnamed prosecutor who presented opening arguments in the trial. (2) The prosecutor successfully convinced the Athenian council not to summarily execute the grain merchants but to allow a trial. (3)

The speech was designed to serve two purposes. The first was to justify the speaker's opposition to summary execution of the grain merchants. This explanation was necessary because his opposition to summary execution led many citizens to suspect that he was in league with the grain merchants. The second purpose was to describe the evidence against the grain merchants and arguments for why they should be convicted and executed. In examining the likelihood that the grain merchants were guilty, I will focus on this aspect of the speech. As a prosecutor of what appears to be a segment of ancient Athenian society that is routinely villainized, Lysias is not likely to be an unbiased source of information. In a sense, this article attempts to determine how pervasive this bias was by at least examining the extent to which Lysias's claims are internally consistent and fit with a reasonable and plausible economic model.

Kotsiris (1988: 454) noted that one of the interesting aspects of Lysais's speech is that the rhetoric employed is not very different from what might be observed in a modern antitrust trial. Lysias began by outlining the important facts and law that should cause the jury to find the accused guilty. He then outlines the grain merchants' justifications for their actions, which in modern antitrust parlance would be called efficiencies, and why the jury should discount or disbelieve those claims. Finally, he closes with an appeal for the jury to find guilt. In this case, the appeal includes a suggestion that the lasting impact of the actions of the grain merchants has been to permanently reduce the willingness of the emporoi to ship grain to Athens, thereby making the adverse effects of the conspiracy long lasting. Because the speech appears to outline both the prosecutor's case and the defendant's rebuttal in some detail, it is possible to make informed speculations on the guilt of the defendants.

While there is much information on the relevant events found in Lysias's speech, information from other contemporary sources on the structure and regulation of the Athenian grain market is useful for understanding the legal context in which the grain merchants operated and in evaluating their guilt. In the following section, I use this information to discuss the structure of the Athenian grain market. In the third section, I discuss the supply shock that increased grain prices and how the regulators modified regulatory policy to allow grain merchants to monopsonistically collude. I then outline the prosecution's case against the grain merchants and the grain merchant's defense, or efficiency justification. In the fifth section, I evaluate the competing arguments in the light of economic theory and argue that, given the regulatory change, the grain merchants' actions were in the public interest but that the change itself was not in the public interest. I conclude the article with a short discussion of what the trial's outcome may have been.

The Structure of the Grain Market

The international grain trade was vital to the viability of Athens as a power in the ancient Greek world. Athens was located in the Attica peninsular region of Greece. According to Kyriazis and Zouboulakis (2004: 127), Attica was a relatively small territory of about 40 square miles with a comparative advantage in producing olive oil, figs, honey, and wine, but a comparative disadvantage in producing grain. Kotsiris (1988: 452) suggests that the area was not large or fertile enough to grow a sufficient amount of grain to feed the nearly half a million people living in Attica. Athens was dependent on imports of grain from foreign sources such as Sicily, Rhodes, Cypress, Hellespoint, and the Euxine lands. Kotsiris (1988: 452) further notes that at least half of the foreign grain came from sources around the Black Sea. Figueria (1986: 156-57) suggests that in this time period it would take 400 shiploads of grain annually to supply Athens's need for grain from outside Attica. Furthermore, the events described in this 'article occurred in a period of increasing relative scarcity of grain. Laistner (1923: xxii) estimated that the price of grain in the fifth and fourth centuries B.C. increased by approximately 40 to 60 percent, while the...