Home > Publications . Search All . Browse All . Country . Browse PSC Pubs . PSC Report Series

PSC In The News

RSS Feed icon

Axinn says data show incidents of sexual assault start at 'very young age'

Miech on 'generational forgetting' about drug-use dangers

Impacts of H-1B visas: Lower prices and higher production - or lower wages and higher profits?

More News

Highlights

Call for papers: Conference on computational social science, April 2017, U-M

Sioban Harlow honored with 2017 Sarah Goddard Power Award for commitment to women's health

Post-doc fellowship in computational social science for summer or fall 2017, U-Penn

ICPSR Summer Program scholarships to support training in statistics, quantitative methods, research design, and data analysis

More Highlights

Next Brown Bag

Mon, Feb 13, 2017, noon:
Daniel Almirall, "Getting SMART about adaptive interventions"

Margaret Levenstein photo

What Determines Cartel Success?

Publication Abstract

Levenstein, Margaret, and Valerie Y. Suslow. 2006. "What Determines Cartel Success?" Journal of Economic Literature, 44(1): 1.

Following George Stigler (1964), many economists assume that incentive problems undermine attempts by firms to collude to raise prices and restrict output. But the potential profits from collusion can create a powerful incentive as well. Theory cannot tell us, a priori, which effect will dominate: whether or when cartels succeed is thus an empirical question. We examine a wide variety of empirical studies of cartels to answer the following questions: (1) Can cartels succeed? (2) If so, for how long? (3) What impact do cartels have? (4) What causes cartels to break up? We conclude that many cartels do survive, and that the distribution of duration is bimodal. While the average duration of cartels across a range of studies is about five years, many cartels break up very quickly (i.e., in less than a year). But there are many others that last between five and ten years, and some that last decades. Limited evidence suggests that cartels are able to increase prices and profits, to varying degrees. Cartels can also affect other non-price variables, including advertising, innovation, investment, barriers to entry, and concentration. Cartels break up occasionally because of cheating or lack of effective monitoring, but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions. Cartels that develop organizational structures that allow them the flexibility to respond to these changing conditions are more likely to survive. Price wars that erupt are often the result of bargaining issues that arise in such circumstances. Sophisticated cartel organizations are also able to develop multipronged strategies to monitor one another to deter cheating and a variety of interventions to increase barriers to entry

DOI:10.2139/ssrn.10.2139/ssrn.299415 (Full Text)

Browse | Search : All Pubs | Next