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Hub-and-Spoke Cartels: Theory and Evidence from the Grocery Industry

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  • Robert Clark
  • Ig Horstmann
  • Jean-François Houde

Abstract

Numerous recently uncovered cartels operated along the supply chain, with firms at one end facilitating collusion at the other—hub-and-spoke arrangements. These cartels are hard to rationalize because they induce double marginalization and higher costs. We examine Canada's alleged bread cartel and provide the first comprehensive analysis of hub-and-spoke collusion. Using court documents and pricing data, we make three contributions: (i) we show that collusion was effective, increasing inflation by about 50 percent; (ii) we provide evidence that collusion existed at both ends of the supply chain; and (iii) we develop a model explaining why this form of collusion arose.

Suggested Citation

  • Robert Clark & Ig Horstmann & Jean-François Houde, 2024. "Hub-and-Spoke Cartels: Theory and Evidence from the Grocery Industry," American Economic Review, American Economic Association, vol. 114(3), pages 783-814, March.
    • Handle: RePEc:aea:aecrev:v:114:y:2024:i:3:p:783-814
    DOI: 10.1257/aer.20211337
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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