Empirical Models of Tacit Collusion
Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: Matthew Weinberg, Ohio State University
Measuring Competition with a Flexible Model of Supply
AbstractThis paper provides a theoretically founded empirical model to simultaneously investigate firm
competition and estimate markups. The model nests the standard oligopoly model, but also
allows for firm collusion. Different from conduct parameter models, our model is consistent with
a series of theoretical models. We show that a nonparametric marginal cost function can be
identified, which gives an estimate of markups. We then apply our model to measure competition
in the airline industry.
Measuring the Incentive to Collude: The Vitamins Cartel, 1990-1999
AbstractDo mergers help or hinder collusion? This paper studies the stability of the vitamin cartels in the 1990s and presents a repeated-games approach to quantify "coordinated effects" of a merger. We use data and direct evidence from American courts and European agencies to show the incentive compatibility constraint (ICC) of the short-lived vitamin C cartel was violated when it actually collapsed in 1995, whereas the ICCs of the long-lived cartels (vitamins A and E, and beta carotene) were satisfied until the prosecution in 1999. Simulations suggest a hypothetical merger could have prolonged the vitamin C cartel. Both the direction and magnitude of coordinated effects critically depend on firms' cost asymmetry and the size of synergy in a non-monotonic manner, highlighting the desirability of quantitative analysis.
- L1 - Market Structure, Firm Strategy, and Market Performance