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Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance

In: THE ANALYSIS OF COMPETITION POLICY AND SECTORAL REGULATION

Author

Listed:
  • Joseph E. Harrington Jr.
  • Juan-Pablo Montero

Abstract

This study investigates when a cartel that uses a sales quota allocation scheme monitors more frequently than it enforces; for example, monitoring of sales is done on a weekly basis but firms are only required to comply with sales quotas on a quarterly basis. In a simple three-period quantity game with i.i.d cost and demand shocks, we show that the volatility of a cartel member's sales follows a U-shape within the compliance horizon. In comparison, sales volatility is constant over time under competition. This result offers a simple empirical test for distinguishing collusion from competition using sales data.

Suggested Citation

  • Joseph E. Harrington Jr. & Juan-Pablo Montero, 2014. "Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance," World Scientific Book Chapters, in: Martin Peitz & Yossi Spiegel (ed.), THE ANALYSIS OF COMPETITION POLICY AND SECTORAL REGULATION, chapter 7, pages 175-192, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814616362_0007
    as

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    References listed on IDEAS

    as
    1. Joseph E. Harrington & Andrzej Skrzypacz, 2011. "Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices," American Economic Review, American Economic Association, vol. 101(6), pages 2425-2449, October.
    2. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    3. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, June.
    4. Harrington, Joseph E., 2006. "How Do Cartels Operate?," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(1), pages 1-105, August.
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    More about this item

    Keywords

    Competition Policy; Sectoral Regulation; Pattern Asymmetry; Market Consolidation; Grocery Retailing; Pricing Developments; Industry Structure; Price Effects of Mergers; Input Price Shocks; Quantity Discounts;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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