Cartels

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Cartels

• Prof. Simon J. Evenett
• www.evenett.com

2
The contents of this presentation

• Types of cartels.
• Effects of cartels.
• Sustaining cartels.
• Measuring the impact of cartels and of cartel
  enforcement.

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Types of cartels

• Price fixing.
• Market sharing.
• Allocating quotas.
• Bid rigging.
• Other notes
• Nature of the agreementneed not be written.
• National versus international cartels.
• Membership of cartels.

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Effects of cartels

• Higher prices to customerssometimes called
  overcharges.
• Maximum price is the monopoly price.
• Involve a redistribution of income from customers
  to suppliers.
• Redistribution can have an impact on state
  budgets (when bid rigging occurs)
• Redistribution can have an international
  dimension.
• Reduce or eliminate the benefits of domestic or
  international reformif such reforms trigger the
  formation of the cartel.
• Limit the transfer of technology to third
  parties.
• Creates a legacy of cooperation that
  post-enforcement can result in implicit collusion.

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Sustaining cartels

• Mitigating internal threats.
• Biggest threat comes from incentive to cheat on
  agreement (PgtMC) and non-observability of sales.
• Monitoring (data collection and communication)
  becomes importantoften leaving a paper trail for
  investigators.
• Use of threats and price wars as a form of
  discipline.

• Eliminating external threats.
• In principle high prices could attract entrants
  from at home or abroad.
• From the cartels perspective measures to keep
  the entrants out are ideal (could be corporate or
  state-led).
• If entry occurs, accommodation and threats are
  used to sustain the cartel agreement.

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Stigler on collusion and cartels

• Emphasises not just the heterogeneity of
  producers output but also of consumers demand
  for the sustainability of collusion.
• Notes the incentive for price-cutting and argues
  that the speed and completeness of monitoring is
  an important determinant of the sustainability of
  collusion.
• Discusses pros and cons of fixing market shares
  as a possible solution to the monitoring problem.
• Enforcing collusive agreements against larger
  buyers is particularly problematic.
• Changes in identity and needs of buyers is a
  serious constraint on collusion.

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Estimating the impact of cartels

• Method 1 (Solano, Pierola)
• Use inter-temporal variation in prices and costs
  of the good in question.
• If there is a cross-regional or cross-country
  dimension to the cartel, use this variation too.
• Look for breaks in the price-marginal cost
  relationship.
• Method 2 (Sproul)
• Use intertemporal prices of cartelised good and a
  close reference good.
• Examine if cartelised good falls further in
  price, compared to the reference price, after
  enforcement.

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Want to learn more?

• George J. Stigler A Theory of Oligopoly Journal
  of Political Economy 1964.
• Michael Sproul Antitrust and Prices, Journal of
  Political Economy 1993.
• Julian L. Clarke and Simon J. Evenett. The
  Deterrent Effect of National Anti-cartel Laws
  Evidence from the International Vitamins Cartel
  Antitrust Bulletin. 2003.