IDEAS home Printed from https://ideas.repec.org/p/tky/fseres/2005cf359.html
   My bibliography  Save this paper

Cartel Pricing Dynamics with Cost Variability and Endogenous Buyer Detection

Author

Listed:
  • Joseph E. Harrington, Jr.

    (Department of Economics, Johns Hopkins University)

  • Joe Chen

    (Faculty of Economics, University of Tokyo)

Abstract

This paper characterizes collusive pricing patterns when buyers may detect the presence of a cartel. Buyers are assumed to become suspicious when observed prices are anomalous. We find that the cartel price path is comprised of two phases. During the transitional phase, price is generally rising and relatively unresponsive to cost shocks. During the stationary phase, price responds to cost but is much less sensitive than under non-collusion or simple monopoly; a low price variance may then be a collusive marker. Compared to when firms do not collude, cost shocks take a longer time to pass-through to price.

Suggested Citation

  • Joseph E. Harrington, Jr. & Joe Chen, 2005. "Cartel Pricing Dynamics with Cost Variability and Endogenous Buyer Detection," CIRJE F-Series CIRJE-F-359, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2005cf359
    as

    Download full text from publisher

    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2005/2005cf359.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Motta, Massimo & Polo, Michele, 2003. "Leniency programs and cartel prosecution," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 347-379, March.
    2. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 651-673, Winter.
    3. Block, Michael Kent & Nold, Frederick Carl, 1981. "The Deterrent Effect of Antitrust Enforcement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 429-445, June.
    4. Abrantes-Metz, Rosa M. & Froeb, Luke M. & Geweke, John & Taylor, Christopher T., 2006. "A variance screen for collusion," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 467-486, May.
    5. Joseph E. Harrington, 2004. "Post‐Cartel Pricing During Litigation," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 517-533, December.
    6. Philippe Cyrenne, 1999. "On Antitrust Enforcement and the Deterrence of Collusive Behaviour," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(3), pages 257-272, May.
    7. Souam, Said, 2001. "Optimal antitrust policy under different regimes of fines," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 1-26, January.
    8. Bolotova, Yuliya & Connor, John M. & Miller, Douglas J., 2008. "The impact of collusion on price behavior: Empirical results from two recent cases," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1290-1307, November.
    9. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    10. Besanko, David & Spulber, Daniel F, 1989. "Antitrust Enforcement under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 99(396), pages 408-425, June.
    11. Christie, William G & Schultz, Paul H, 1994. "Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-1840, December.
    12. Joseph E. Harrington, 2005. "Optimal Cartel Pricing In The Presence Of An Antitrust Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 145-169, February.
    13. Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 13-38, April.
    14. Foster, Dean P. & Young, H. Peyton, 2003. "Learning, hypothesis testing, and Nash equilibrium," Games and Economic Behavior, Elsevier, vol. 45(1), pages 73-96, October.
    15. Besanko, David & Spulber, Daniel F, 1990. "Are Treble Damages Neutral? Sequential Equilibrium and Private Antitrust Enforcement," American Economic Review, American Economic Association, vol. 80(4), pages 870-887, September.
    16. Harrington, Joseph Jr., 2003. "Some implications of antitrust laws for cartel pricing," Economics Letters, Elsevier, vol. 79(3), pages 377-383, June.
    17. Levenstein, Margaret & Suslow, Valerie Y. & Oswald, Lynda J., 2003. "Contemporary International Cartels And Developing Countries: Economic Effects And Implications For Competition Policy," Working Papers 14590, International Agricultural Trade Research Consortium.
    18. Chantale LaCasse, 1995. "Bid Rigging and the Threat of Government Prosecution," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 398-417, Autumn.
    19. Schinkel, M.P. & Tuinstra, J., 2002. "Imperfect antitrust enforcement," Research Memorandum 031, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
    2. Joseph E. Harrington, 2005. "Optimal Cartel Pricing In The Presence Of An Antitrust Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 145-169, February.
    3. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 651-673, Winter.
    4. Joseph E. Harrington, Jr & Joe Chen, 2005. "he Impact of the Corporate Leniency Program on Cartel Formation and the Cartel Price Path," Economics Working Paper Archive 528, The Johns Hopkins University,Department of Economics.
    5. Flavia Roldán, 2012. "Collusive Networks in Market‐Sharing Agreements in the Presence of an Antitrust Authority," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(4), pages 965-987, December.
    6. Roldan, Flavia, 2011. "Covert networks and antitrust policy," IESE Research Papers D/932, IESE Business School.
    7. Kalyn Coatney & Jesse Tack, 2014. "The Impacts of an Antitrust Investigation: A Case Study in Agriculture," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 423-441, June.
    8. Carlos Ponce & Flavia Roldán, 2016. "Antitrust policies in network environments," Documentos de Investigación 112, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    9. Katsoulacos, Yannis & Motchenkova, Evgenia & Ulph, David, 2020. "Combining cartel penalties and private damage actions: The impact on cartel prices," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    10. David Bartolini & Alberto Zazzaro, 2010. "The Anticompetitive Effects of the Antitrust Policy," Contributions to Economics, in: Giorgio Calcagnini & Enrico Saltari (ed.), The Economics of Imperfect Markets, chapter 0, pages 213-232, Springer.
    11. Hüschelrath, Kai & Veith, Tobias, 2011. "The impact of cartelization on pricing dynamics: Evidence from the German cement industry," ZEW Discussion Papers 11-067, ZEW - Leibniz Centre for European Economic Research.
    12. Robert M. Feinberg & Minsoo Park, 2015. "Deterrence Effects Of Korean Antitrust Enforcement On Producer Prices And Profit Margins," Journal of Competition Law and Economics, Oxford University Press, vol. 11(4), pages 917-933.
    13. Panayiotis Agisilaou, 2013. "Collusion in Industrial Economics and Optimally Designed Leniency Programmes - A Survey," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2013-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    14. David BARTOLINI & Alberto ZAZZARO, 2008. "Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels," Working Papers 325, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    15. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets," Discussion Papers in Economics 16179, University of Munich, Department of Economics.
    16. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    17. Harold Houba & Evgenia Motchenkova & Quan Wen, 2018. "Legal Principles in Antitrust Enforcement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(3), pages 859-893, July.
    18. Gianmaria Martini, 2005. "Hard Core Cartels and Avoidance of Investigation in the Presence of an Antitrust Authority," Working Papers 0505, Department of Management, Information and Production Engineering, University of Bergamo.
    19. Caroline Elliott & Melinda Acutt, 2007. "Antitrust Policy: The Impact of Revenue Penalties on Price," Experimental Economics, Springer;Economic Science Association, vol. 7(1), pages 1-8, March.
    20. Emilie Dargaud & Armel Jacques, 2023. "Intermittent Collusive Agreements: Antitrust Policy and Business Cycles," Post-Print hal-04206725, HAL.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tky:fseres:2005cf359. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CIRJE administrative office (email available below). General contact details of provider: https://edirc.repec.org/data/ritokjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.