Case Study on Catch Shares in the Fishing Market

Jacob Brown

ECO 2023

Microeconomic Principles

April 27, 2020

 Seafood is a very significant resource in the diets of populations all over the world. It is

the job of fisheries and, in more recent years, aquaculture to supply the world with the sea’s

organisms which we consume. The fishing market carries an interesting economic story

involving decades of environmental concerns, supply fluctuations, and government intervention.

One such government intervention is the establishment of the catch share. The purpose of this

case study is to analyze the fishing market from an economic perspective and discuss the

effectiveness of catch shares as an economic solution for market failures. Based on this analysis,

an amended solution will be proposed that may be more economical for the market.

It is difficult to argue what degree of scarcity the fishing market faces. Overfishing has

been a concern of economists, marine biologists, and environmentalists for a long time, but

world fish production has only been increasing over the years, with capture fishing stagnating at

approximately 90 million tons in the past three decades (Hannesson, 2015). The concern then is

that the continued rate of world fish production could eventually lead to market collapse from

fish populations becoming scarce. The demand for fish will be greater through the years as the

human population increases as projected. It may become difficult to keep up with this demand as

many parts of the world must adhere to government fishing regulations. The fishing market’s

supply will need to increase with demand in order to create and maintain economic equilibrium.

Fisheries face an opportunity cost from not being able to fish without limit as they

typically did before regulation. It’s been reported, however, that marginal costs are substantial in

the fishing market when fisheries adhere to the first-come-first-serve, derby-style of fishing. For

each fish a fishery catches over quota, they become vulnerable to illegal fishing. They also may

suffer from overstaffing on vessels, dispatching too many vessels for too long, and loss of life or

injury from dangerous fishing practices (Leschin-Hoar, 2016). All of these situations are very
costly to the fisheries and can be harmful to the fishing market overall when it’s being done by so

many fisheries, especially in places without regulation.

The marginal benefits of the fishing market are most prominent when fisheries have the

technology and workforce to maximize their catch. For some smaller fisheries, it has become

very difficult to keep up with the greater fleet and greater share of quotas that large fisheries

possess. This drives some of these smaller fisheries out of the market (Rotten, 2018). For catch

share-related reasons to be discussed, large fisheries are able to capitalize on the fishing quota

system that has been established.

It seems the marginal costs of fishing without regulation can greatly outweigh the

benefits, especially when only larger players in the market can reap the benefits. The benefits

look even smaller when the environmental costs aren’t accounted for. Overfishing is a genuine

societal concern that creates a negative externality in the fishing market. The potential of

overfishing and damaging ocean ecosystems is greater in places with little or no government

intervention. Many fishermen in the fishing market suffer from information failure because they

don’t know the size of the available fish stocks that they catch (Depletion of Fish Stocks).

Adding to the problem, better catching technology makes catches bigger and easier, and this can

give fishermen the false notion that this indicates a plentiful stock of fish populations. If fish

populations become highly scarce, supply will drop, and the market will be thrown out of

equilibrium.

Catch sharing is the government solution to try to fix this fishing market failure. Catch

sharing is most present in highly developed countries, with the first catch sharing system being

implemented in 1990. The system involves setting limits that can be caught of certain species of

fish sustainably, with quotas serving as the portion of the limit each fisherman can catch. These
quotas can be sold off or bought to other fisheries (How Catch Shares Work). This is how

wealthier fisheries acquire larger shares of the limit, essentially buying smaller fisheries out of

the market. The purpose of the catch share system is to prevent overfishing so that fish

populations can grow to levels scientifically determined to be a healthy population.

The documentary Rotten: Cod is Dead features many fishermen who have been in the

fishing market before the introduction of catch shares. Most of them criticize the system, as it

requires changing fishing habits that have been the norm for centuries. Meanwhile, economists

and marine biologist shown in the film typically support intervention. While the system may not

be perfect and still has the potential to be exploited in some ways, the pros appear to outweigh

the cons. Many perceived issues actually stem from poor management, and persistent bad or

illegal fishing practices (Fisherman Fishing, 2012).

Because catch shares are designed to promote growth in the ocean’s populations, when

they do grow past a certain limit, the limit that can be caught by fisheries increases (How Catch

Shares Work). If fisheries adhere to the system, the supply of fish should continue to grow

sustainably with little worry for overfishing in regulated areas. Since the introduction of catch

shares, capture fishing has yielded a consistent fish market production. With the addition of

aquaculture in the mix, production has only been growing (Hannesson, 2015). An additional

benefit of catch share is that fishermen fish more carefully so as not to fish over their limit,

reducing undesirable discard catches. Finally, death and injury have been reduced from

government intervention because fisheries working under catch share display less risky behavior

(Leschin-Hoar, 2016).

The graph shown at the end of this report represents the market failure occurring in the

fishing market. The deadweight loss between the marginal private costs and the marginal social
costs represents a loss of fish stock that will be important to fisheries supplying products in the

future. The implementation of catch shares is intended to fix this externality. As previously

stated, fish populations replenishing from catch shares will eliminate or at least reduce the

deadweight loss. This exemplifies why it is important that government intervention is

implemented in all areas of the world using the ocean to supply fish. In developing countries,

fishermen also engage in risky, unsustainable, and unsanitary practices, and government

intervention can help to reduce these market problems.

With all the issues catch sharing seeks to solve, a major reason many fisheries have come

to oppose it is the effects it has had on the distribution of power within the market. Because large

fisheries are capable of buying out all of a smaller fishery’s quotas, many of the smaller fisheries

still existing fear that their business will be driven out of the market like so many others have

been. This issue reaches possibly one of its most extreme cases with the notorious fishery owner,

Carlos Rafael. Rafael not only bought out a massive amount of the New Bedford quotas and

became the owner one of the largest fishing fleets in the world, but also ran his business under

unethical, illegal, and often unsafe conditions (Rotten, 2018). This gave him immense market

power with monopolistic qualities. Rafael’s rise and eventual downfall led many, in addition to

the fisherman who already saw economic suffering in catch sharing, to question what

government intervention truly costs the fishing industry.

As discussed previously, large fisheries have the finances to buy out other fisheries and

vastly increase their share of the ocean’s fish populations. In doing so, larger fisheries gain

market power which makes it even more difficult for competing fisheries to survive and thrive.

The dominant fisheries start to show characteristics of monopolists. Firstly, the government

institution of catch sharing as a solution to the market failures can inadvertently create a massive
barrier to entry. The larger fisheries have such a greater share of quotas that smaller businesses

will have great difficulty entering the market and sustaining themselves. Additionally, the

possibility of being bought out may generate more fear of entering. Second, fisheries with a huge

market share have substantial control over a key source, the key source being the fish that’s

consumed by millions of people around the world per day. It’s worth noting that this amount has

been shown to be increasing per person in the past decade. Because seafood is so important to

many global diets and to local economies, the control large fisheries have over the market can be

exploitive.

One final monopolistic characteristic of large fisheries is their resemblance to a natural

monopoly. With such a large share of the fish market output and the technology to operate more

efficiently than others, startup costs become very high, especially with the unique skills, raw

material, and technology that may be necessary to operate a fishery (Hubbard, 2019). A near

monopolistic level of market power becomes more apparent when viewed at the community or

city level. Because the fishing industry has its main contributors focused at cities with ocean

access, the competition within that area becomes minimized when large firms already have

relatively few competitors and can essentially take over that community/city’s fishing market. In

other words, a large fishery in a city will likely have the benefit of not having to compete with

other cities, and therefore can practically monopolize in their locale of operation (Agar, 2020).

One goal of antitrust laws is “to promote competition among firms” (Hubbard, 2019).

Catch sharing as an antitrust measure seems highly unjustified when considering the

observations made above. The high barriers to entry eliminate a great deal of competition; Add

to that the elimination of competitors from having their quotas bought out by larger firms. The

acquisition of not only a firm’s quotas, but also sometimes their fleet, workers, and other assets
works similar to a horizontal merger. Because this can occur so easily and as prevalently as it

does in the catch sharing system, it fails to resemble an antitrust law. It seems the system has

caused many inadvertent issues in the market when it sought to fix them.

Another drawback of catch sharing that fisheries are facing is the reduction in diversity of

catches. Because of the costs associated, many fisheries choose to specialize in one or a few

species of fish rather than many or all of what they potentially could catch. The unequal

distribution of quotas for particular species also limits a fisheries’ portfolio, especially when so

much of the quota may be in the hands of large, wealthy fisheries. This is a major downfall

considering it has been shown that diversification of catches is highly desirable because it can

provide a fishery many benefits. These benefits include greater income opportunities, reduced

income fluctuation, greater productivity, and greater technical efficiency (Anderson, 2008).

There is possibly a tradeoff that exists between more specialization and reduced risks from

diversification. Perhaps if more fisheries were aware of this, they would invest in diversifying

the species of which they can catch. Still, there is the issue of whether or not it is financially

beneficial for a fishery to make this decision with the circumstances of the market.

With all the apparent downfalls of the catch sharing system, solutions should be

developed to correct them. There are undoubtedly problems that have arisen and persisted since

government intervention began, which can be seen and heard through the many voices of the

fishermen struggling to compete in the current state of the fishing market. These voices should

be answered, and so the following is a proposed solution to correct the downfalls of catch

sharing.

Firstly, fisheries should at least be made aware of diversification benefits. Although it

may be inefficient for certain firms to engage in diversification of their catches, it is important
that the opportunity is attainable and encouraged in the market. This could result in growth of

smaller fisheries and market power being distributed in a more economically efficient way.

Government subsidies and incentives should also be considered to help encourage fisheries to

diversify. Second, a cap should be placed on the number of quotas any one fishery can own,

specific to the species of fish. This would prevent the large fisheries from having such an

immense share of that catch, nearly unattainable to others. Thus, the distribution of wealth in the

fishing market would be more sustainable, and the barriers to entry not so high. Lastly, the

government could pay fisheries to equip fishing boats and equipment with cameras and other

tools that may help in researching fish populations and ecosystem conditions. This could help

researchers gather data to better evaluate ecosystems and make better conclusions from which

the government would base regulations. The goal is that any amendments, new laws, or

regulations put into place would truly benefit smaller fisheries without driving a significant

amount of them out of the market. Government intervention should be used to redistribute

market power throughout the fishing market so that large fisheries aren’t able to exploit the

system and throw it out of balance.

The fishing market still has its failures and likely will for years to come. With the

population continuing to grow, fishermen will be tasked with supplying the greater demand for

seafood that can be expected in the economy of the future. If catch sharing continues to spread

but improves on its enormous downfalls, whether by the solution proposed above or some other,

the fishing market likely has a bright economic outlook. Populations of fish will be stabilized,

fisheries will catch more sustainably, and production will be more efficient. The societal benefits

of the catch share will help to fix the negative externality of the market. Environmental health

will always be of great public concern, and by standing by catch sharing with some amendments,
the economic benefits in the fishing market can be maximized, and a socially efficient

equilibrium can be attained.

(Depletion of Fish Stocks, fig. 3)
 Bibliography

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https://www.economicsonline.co.uk/Market_failures/Depletion_of_fish_stocks.html

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Hubbard, R. Glenn, and Anthony Patrick O'Brien. 2019. Microeconomics. Upper Saddle River,
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Leschin-Hoar, Clare. 2016. “Study: Program to Protect Fish is Saving Fishermen's Lives, too”.
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NOAA Office of Science and Technology n.d. “Economics Performance of U.S. Catch Share
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x

Rotten: Cod Is Dead. Directed by David Mettler. Netflix. 2018 Accessed September 09, 2018.
https://www.netflix.com/watch/80149704?trackId=13752289&tctx=0%2C5%2C3f2dcf4d
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