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Cartel price announcements: The vitamins industry

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  • Marshall, Robert C.
  • Marx, Leslie M.
  • Raiff, Matthew E.
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    Abstract

    The primary manufacturers of vitamins admitted to participating in international market-share-agreement cartels for several years during the 1990s. Their announced price increases appeared in leading trade journals. We show that price announcements during the cartel period, and the lead times before these prices took effect, were fundamentally different in character from price announcements when explicit collusion was less likely. These differences are consistent with our model of price announcements where we account for the importance to the cartel of buyer acceptance of, or resistance to, a price increase. Acceptance avoids costly market-share reallocations among members of an explicit cartel. Logit estimates show that after 1985, the likelihood of a price announcement is largely driven by the length of time between announcements, rather than cost or demand factors, suggesting that the price announcements after 1985 stem from cartel meetings.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 26 (2008)
    Issue (Month): 3 (May)
    Pages: 762-802

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    Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:762-802

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    Web page: http://www.elsevier.com/locate/inca/505551

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    References

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    1. Deneckere, Raymond J & Kovenock, Dan, 1992. "Price Leadership," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 143-62, January.
      • Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    3. Kovenock, D. & Widdows, K., 1991. "Price Leadership and Asymmetric Price Rigidity," Purdue University Economics Working Papers 1008, Purdue University, Department of Economics.
    4. Dave Furth & Dan Kovenock, 1993. "Price leadership in a duopoly with capacity constraints and product differentiation," Journal of Economics, Springer, vol. 57(1), pages 1-35, February.
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    6. Cooper, David J., 1997. "Barometric price leadership," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 301-325, May.
    7. Marshall, Robert C. & Marx, Leslie M., 2007. "Bidder collusion," Journal of Economic Theory, Elsevier, vol. 133(1), pages 374-402, March.
    8. Lawrence J. White, 1999. "Lysine and Price Fixing: How Long? How Severe?," Working Papers 99-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    9. Rotemberg, Julio J & Saloner, Garth, 1990. "Collusive Price Leadership," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 93-111, September.
    10. d'ASPREMONT, Claude & JACQUEMIN, Alexis & GABSZEWICZ, Jean J. & WEYMARK, John A., . "On the stability of collusive price leadership," CORE Discussion Papers RP -522, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    12. Booth, D L, et al, 1991. "An Empirical Model of Capacity Expansion and Pricing in an Oligopoly with Barometric Price Leadership: A Case Study of the Newsprint Industry in North America," Journal of Industrial Economics, Wiley Blackwell, vol. 39(3), pages 255-76, March.
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    Cited by:
    1. Johannes Paha, 2009. "Using Accounting Data in Cartel Damage Calculations – Blessing or Menace?," MAGKS Papers on Economics 200929, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market," Discussion Papers in Economics 16182, University of Munich, Department of Economics.
    3. Shakun Datta Mago & Emmanuel Dechenaux, 2009. "Price leadership and firm size asymmetry: an experimental analysis," Experimental Economics, Springer, vol. 12(3), pages 289-317, September.

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