How resale price maintenance and loss leading affect upstream cartel stability: Anatomy of a coffee cartel

We study empirically the price effects of upstream cartels that sell through downstream retailers to final consumers. We focus on a German coffee producer cartel that colluded under two different regimes: (i) involving wholesale prices in 2003 and (ii) with additional resale price maintenance from 2005 to 2008. We find that collusive wholesale prices affected coffee consumers, but only in the short run. We quantify an average overcharge of 3% for the collusive regime without resale price maintenance in 2003. The cartel, however, broke down a few months after the announcement. The collusive overcharge increased to 14% after the introduction of resale price maintenance, and the cartel lasted for a few years. Our primary result is, therefore, that resale price maintenance facilitated better organization of the cartel, as evidenced by the higher overcharges and longer cartel duration. Our secondary result is that loss-leading incentives of retailers during high-demand peaks destabilized the upstream coffee cartel.