GEA1_Case Study

Ethan Peck

ECO2023 Section 099

Fall 2021

Dr. Martinez

12/1/21
 Without government intervention, the fishing market as a free market would eventually

create a shortage for itself. If the government doesn’t interfere, overfishing will occur causing

said shortage. In a free market fishing companies would have to control themselves to not

overfish in order to keep their business alive.

The marginal cost would increase with every fish they take out of the ocean to sell

because it would take away from their future profits. If the fishing company leaves that extra fish

in the sea it can go and reproduce which in turn creates more profit for them in the future. The

marginal benefit of catching that one more fish is most likely less than the marginal cost.

According to Forbes’ Two-Thirds Of The World’s Seafood Is Over-Fished -- Here’s How You

Can Help, “Two-thirds of the worlds fish are overfished and depleted … only a third of fisheries

are fished at levels that allow fish to repopulate.” Obviously this quote is talking about the

fishing market with government intervention; however it highlights how bad the market could be

without any intervention. Forbes’ Two-Thirds Of The World’s Seafood Is Over-Fished -- Here’s

How You Can Help also says that “Illegal, unreported, and unregulated fishing is estimated to

account for 20-30% of the global catch.” In a world with government intervention, a large

percentage of fish are already being left out of the total count on what is being taken out of the

ocean. In a world with no intervention this problem would most likely continue to grow. As a

planet we would not know how many fish are in our ocean at one time and eventually we could

harvest a large enough amount of fish to where they cannot reproduce and the supply will run

dry.

The benefits of not having any government intervention would be the market would be

flooded with supply, so much so the price of fish would fall and henceforth the demand would

rise. The cost of not having government intervention is the unavoidable shortage that is bound to
occur because there are no limits on how much fish a charter can bring in. A shortage would also

occur because the fishing charters are not being taxed per fish in a world with no government

intervention so their marginal benefit outweighs the marginal cost for every fish. Graph One is a

good representation of what the supply and demand graph would look like in a world with no

government intervention. P* shows the equilibrium price and Q* shows the equilibrium quantity.

These will only change if supply or demand changes however without government intervention

this will not happen.

This fishing market can fail because of many reasons. As we have talked about in class,

market failure occurs when supply and demand is in disequilibrium due to distortion of the

market. The first thing that could cause market failure in this market is an externality. A possible

externality for this market could be sharks eating all the fish or people begin to hunt fish for sport

and then discard the dead fish instead of selling it. The second possible cause of market failure is

the use of fish as a public good. If more people began to purchase a boat and go out on the water

and fish for their own food this could lead to the potential downfall of the commercial fishing

industry. Fishing is seen as a public good however many people don’t do it because of the

opportunity cost and the risks associated with deep sea fishing. The last possible cause of market

failure would be if someone were to obtain a monopoly over the fishing industry. If this were to

happen the price of fish in the store can be set very high if the owner would like it to be. This

would lead to people consuming other foods than fish which would mean there is less demand

than supply leading to a market failure unless the owner of the monopoly lowers their prices. In

Graph 2 at the bottom of my paper the quantity supplied at Qs is much less than the quantity

demanded at Qs. At the point Qd quantity demanded is much less than the quantity supplied.
This means that at Qs there is a shortage and at Qd there is a surplus which means market failure

is occurring.

Catch shares is a term used in the fishing world, according to the National Oceanic and

Atmospheric Administration, “Catch shares is a general term associated with several fisheries

management strategies that dedicate a secure share of fish to individual fisherman, cooperatives,

or fishing communities for their exclusive use.” These catch shares are used as a limit for how

much fish a group or individual is allowed to remove from the ocean. The catch shares are

somewhat like a binding price floor which leaves over a surplus of fish in the ocean which

allows people to continue fishing season after season. Catch shares are used across the United

States to make sure that the cost of seafood stays relatively low. They are also used to improve

the safety of fishermen and to extend the fishing season.

This form of government intervention corrects the market failure by limiting the amount

of fish that are allowed to be harvested by each person, company, or organization. Like I said

earlier in the paper this allows there to be a surplus of fish in the ocean which leads to fish being

sold year round instead of only once or twice a year. According to the Proceedings of the

National Academy of Sciences of the United States of America, “catch shares may decrease

diversification as a result of consolidation, they can also increase economic efficiency by

increasing fishery value and decreasing costs, which may compensate for increased revenue

volatility if it does occur.” Catch shares are put into effect with the explicit goal of reducing

excess capacity. However, not all government intervention is positive. According to

humanprogress.org, “The fishing industry is hurting, with pollution and rising temperatures

among the factors impacting the lives of commercial fishermen. In response, governments pay

over $22 billion a year in capacity-enhancing subsidies … These subsidies make it more
affordable to fish, but they also lead to the overexploitation of the fish population and make it

difficult for small fisheries to compete.” If the small fisheries cannot compete with large

corporations a monopoly will eventually occur which would be bad for our economy. Another

reason that small fisheries are not able to compete with large, commercial fishing operations is

because of the scarcity of fish. Fish is so widely demanded in the world that it makes it difficult

for small fisheries to make a profit when they have to compete with large fisheries for fish. The

fish market can be considered a rival market because when one firm takes fish out of the sea, it

prevents another firm from taking that fish and making a profit off of it. Fish as a good are

considered non-excludable because there are no possible restrictions that stop any one person or

firm from harvesting the fish from the sea. Humanprogress.org also said that “governments hand

out more than $35 billion each year to the commercial fishing industry. That is equal to 20

percent of the value of every commercial fish caught.” What this article is saying is that while

the current government intervention does help correct the market failure it is causing other

problems and is assisting in the formation of a monopoly in the fishing industry. The reason that

this market fails so often is because the market cannot achieve an efficient allocation of their

resources. This is because fish is a public good which leads to it being overexploited by everyone

regardless of government intervention.

The Tragedy of the Commons occurs in a market when every party in the market puts

aside everyone else's well being for their own benefit. Hypothetically in the fishing market an

example of this would be if everyone were to collect as many fish as they possibly could. This

would eventually lead to their being no more fish in the sea which would be bad (tragedy) for

everyone (commons). In Graph 3 the socially optimal quantity is larger than the quantity that is

currently being supplied. This is because in this example as more and more supply, or fish, are
taken the demand quickly stays the same causing deadweight loss to occur. This deadweight loss

can possibly be negated by the government intervening and enforcing rules on how many fish

people are allowed to take out of the sea. The Tragedy of the Commons phenomenon only

affects common resources as mentioned in the name. Common resources are described as

resources that are rivalrous and non-excludable, like fish.

Catch shares also have these benefits: they end overfishing, reduce waste and fish thrown

overboard, and it reduces “ghost fishing”. According to edf.org, “Commercial fisherman voted to

switch to catch shares in the Gulf red snapper fishery in 2007. Since then, there’s been 100%

compliance with catch limits, which has helped the red snapper population rebound.” Ghost

fishing has also seen a drastic decrease. Ghost fishing is a term used to talk about the amount of

fish that die in gear that gets lost or broken. Edf.org says that, “In the Alaska halibut fishery,

“ghost fishing was reduced by 80% in the first year under catch shares from 1,289,000 pounds in

1994 to 257,000 pounds in 1995.” This is because the catch share allows the fishermen to

attempt to recover tangled gear instead of just cutting it loose.

This paper shows both the cost and benefits of government intervention in the fishing

market. If the government stays completely removed from the fishing market a shortage of fish

will occur which will cause prices to skyrocket up. On the other hand, if the government

becomes too involved in the fishing market like mentioned earlier in the paper a monopoly will

have the ability to form because the smaller fisheries will not be able to compete with the large

corporations after the government subsidizes the fishing market. There is a perfect medium

somewhere that allows the government to subsidize the fishing market while preventing a

monopoly and maximizing production for everyone.

 One possible solution that I came up with that does not involve the government would be

privatising the fishing market. This would mean that private companies would intervene into the

current fishing market and begin enforcing their own rules about harvesting fish from the ocean

and charging their own price. One possible problem with this solution however would be the

formation of a monopoly, or oligopoly. If there are only a few large firms that decide to enter an

oligopoly would already have been created because the fish (product) are only slightly

differentiated and they can all communicate and set a price that would benefit them all.

However, oligopolies are studied through game theory and every firm would want to make the

most profit. In order to do this though firms would have to accept missing out on some profit so

they can ensure they make the highest amount of profit that is realistically attainable.

Another idea that I think may work would be no longer having fish for sale at every

single grocery store and instead making them seem more “exclusive”. Perhaps if fish were to be

sold by grocery stores by order only so that way there is no fish just sitting out on the shelf with

shelf life and when not sold just tossed in the trash. This would most likely lead to a slight

increase in price however I believe this would stop the price of fish from fluctuating. In a perfect

world this way of selling fish would leave more fish in the sea because fishing companies would

not have an incentive to harvest large amounts of fish to sell them to grocery stores across the

country, instead they would just wait for grocery stores or restaurants to order a certain kind and

amount of fish. In turn the price for fish would stay relatively the same because there should

always be fish in the sea that are able to be harvested. One issue with this idea is that there would

most likely be significantly large shipping costs. This is because instead of sending large

quantities of fish to the stores like they do now, the fishing companies would instead send

multiple smaller orders of fish. Another possible problem with this idea would be people just
ordering very large amounts of fish and turning around and reselling them; however if this idea

were to be adapted I would suggest to the fishing companies putting limits on how much fish

people could order in a standard 7 day week.

As I said at the very beginning of this paper in a free market companies would have to

restrain themselves from overfishing so that their company can stay alive and keep making a

profit. However this is unlikely to happen because fish are a common resource and if there is no

government intervention in the market, the market itself would suffer from the Tragedy of the

Commons causing the fish to run out. Government intervention would prevent the market from

suffering from the Tragedy of the Commons however it would cause deadweight loss to occur

which would reduce consumer and producer surplus. Catch shares have the same effect as

government intervention in that they end overfishing and set limits on how many fish fishermen

are allowed to remove from the ocean. Towards the end of my paper I provided two different

solutions for the current state of the fishing economy. I do not know if there would be any

deadweight loss however I can confidently say that there would be a very very small chance of

the Tragedy of the Commons to occur.

Graph 1

Graph 2

Graph 3 (Tragedy of the Commons Graph)

 Bibliography

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