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Topic 9: cartels and coordinated effects

A ntitrust Economics 2013. David S. Evans University of Chicago, Global Economics Group. Elisa Mariscal CIDE, Global Economics Group. Topic 9: cartels and coordinated effects. Topic 9 | Part 1 29 August 2013. Date. Overview. The Economics of Price Fixing.

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Topic 9: cartels and coordinated effects

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  1. Antitrust Economics 2013 David S. Evans University of Chicago, Global Economics Group Elisa Mariscal CIDE, Global Economics Group Topic 9: cartels and coordinated effects Topic 9 | Part 1 29 August 2013 Date

  2. Overview

  3. The Economics of Price Fixing “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Adam Smith (1723-1790) The Wealth of Nations, Book I, Chapter X (1776)

  4. The Economics of Price Fixing

  5. The Six Palaces Price Fixing Scandal

  6. Some Other Cartel Price Paths Railroads Citric Acid Lysine

  7. Cartel Duration Harrington, CRESSE Lectures, 2011

  8. Cartel Harm Connor (2001), Levensteiny Suslow (2001), OECD, and WorldIntegratedTradeSolutiondatabase. SITC: Standard International TradeCode.

  9. Fact About Cartels Data Harrington, CRESSE Lectures, 2011

  10. Replicating the Monopoly Outcome with a Cartel Agreements on Price and Agreements on Output

  11. Price Agreements Number of identical firms = 20 Monopoly Profit margin of $15 a unit and total profit of $15 million. Perfect competition MC P MR PM = $20 PC = $5 D 2,000,000 1,000,000 Q

  12. Output Agreements

  13. Cartels with Two-Sided Platforms Fixed priced to buyers, not clear to sellers

  14. So You Want to Start a Cartel …

  15. The Incentives to Cheat

  16. Importance of Cheating for Antitrust

  17. Incentives to Cheat on a Cartel Agreement

  18. Incentives to Cheat on Price Agreement

  19. Incentives to Cheat on Output Agreement Lysine cartel: one company Claimed it reported “misleading” sales info to the other companies and other company hid 3500 tons of Lysine from the cartel’s auditors. Harrington, CRESSE Lectures, 2011

  20. Incentives to Cheat

  21. Cheating Makes It Hard for Cartels to Achieve Monopoly Price

  22. Methods for Detecting and Punishing Cheaters

  23. Detecting and Punishing Cheaters

  24. Detecting Cheating

  25. Output Allocation and Cheating

  26. Price Setting and Cheating

  27. Detecting Cheating: Meeting Competition Clauses

  28. Punishing Cheating: Brute Force

  29. Punishing Cheating: Gentle or Not So Gentle Retribution

  30. Punishing Cheating: Price Wars

  31. Entry and Cartels

  32. Factors That Make Collusion Easier to Sustain

  33. Factors that Facilitate a Cartel

  34. Facilitating Factors—Structural Features

  35. Facilitating Factors—Institutional Features

  36. Facilitating Factors—Contractual Practices

  37. End Part 1, Next Class Part 2

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