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Using list prices to collude or to compete?

Author

Listed:
  • Diego Cussen
  • Juan-Pablo Montero

Abstract

It is often argued that collusion is not possible in wholesale markets where suppliers and buyers privately negotiate discounts off list prices and sales quotas are unfeasible. However, this would go against allegations in court of suppliers being able to collude by publicly announcing list prices. It would also go against recent evidence from Chile’s wholesale fresh-egg market: a sudden interruption in the publication of list prices in the local newspaper led to a significant drop in the prices effectively paid by different buyers, large and small. We develop a theory consistent with this evidence, whether suppliers collude or compete. Two effects are at work. When suppliers collude, public announcements of list prices enlarge collusion possibilities from small to large buyers (the multibuyer contact effect). When suppliers compete, these announcements provide them with commitment to unilaterally negotiate better terms with large buyers (the commitment effect).

Suggested Citation

  • Diego Cussen & Juan-Pablo Montero, 2022. "Using list prices to collude or to compete?," Documentos de Trabajo 567, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:567
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-567.pdf
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    References listed on IDEAS

    as
    1. Marhsall, Robert C. & Marx, Leslie M., 2014. "The Economics of Collusion: Cartels and Bidding Rings," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262525941, April.
    2. Dmitry Lubensky, 2017. "A model of recommended retail prices," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 358-386, May.
    3. Carlos Noton & Andrés Elberg, 2018. "Are Supermarkets Squeezing Small Suppliers? Evidence from Negotiated Wholesale Prices," Economic Journal, Royal Economic Society, vol. 128(610), pages 1304-1330, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    list prices; collusion; Nash bargaining;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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