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Cartel sustainability in retail markets: Evidence from a health service sector

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  • Goto, Ujo
  • Iizuka, Toshiaki

Abstract

This paper studies the role of cost asymmetries and product differentiation on cartel sustainability by drawing data from a failed retail cartel. Unlike the extensive theoretical literature, little empirical evidence exists on these relationships. First, we analyze cartel compliance and find that players are more likely to comply when cost is symmetric and own cost is high. Next, based on a structural model and counterfactual experiments, we show that a cartel price that satisfies all cartel members does not exist. This result indicates an inherent difficulty of sustaining collusion in retail markets with heterogeneous players. We also show that firm heterogeneities, especially product differentiation rather than cost asymmetries, hinder collusion more. Finally, we derive the level of patience (or the discount factor) required for cartel sustainability when firms split profits based on the Shapley value.

Suggested Citation

  • Goto, Ujo & Iizuka, Toshiaki, 2016. "Cartel sustainability in retail markets: Evidence from a health service sector," International Journal of Industrial Organization, Elsevier, vol. 49(C), pages 36-58.
    • Handle: RePEc:eee:indorg:v:49:y:2016:i:c:p:36-58
    DOI: 10.1016/j.ijindorg.2016.08.001
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    Cited by:

    1. David T. Frazier & Eric Renault & Lina Zhang & Xueyan Zhao, 2020. "Weak Identification in Discrete Choice Models," Papers 2011.06753, arXiv.org, revised Jan 2021.
    2. Hattori, Keisuke, 2021. "Profit-Sharing vs Price-Fixing Collusion with Heterogeneous Firms," MPRA Paper 110800, University Library of Munich, Germany.

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    More about this item

    Keywords

    Cartel sustainability; Retail market; Firm heterogeneities;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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