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Breaking Up Is Hard to Do: Determinants of Cartel Duration

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  • Margaret C. Levenstein
  • Valerie Y. Suslow
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    Abstract

    We estimate the impact of cartel organizational features, as well as macroeconomic fluctuations and industry structure, on cartel duration using a data set of contemporary international cartels. We estimate a proportional hazards model with competing risks, distinguishing factors that increase the risk of “death by antitrust” from those that affect natural death, including defection, dissension, and entry. Our analysis indicates that the probability of cartel death from any cause increased significantly after 1995, when competition authorities expanded enforcement efforts toward international cartels. We find that fluctuations in firm-specific discount rates have a significant effect on cartel duration, whereas market interest rates do not. Cartels with a compensation scheme—a plan for how the cartel will handle variations in demand—are significantly less likely to break up. In contrast, retaliatory punishments in response to perceived cheating significantly increase the likelihood of natural death. Cartels that have to punish are not stable cartels.

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    File URL: http://www.jstor.org/stable/full/10.1086/657660
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    Bibliographic Info

    Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

    Volume (Year): 54 (2011)
    Issue (Month): 2 ()
    Pages: 455 - 492

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    Handle: RePEc:ucp:jlawec:doi:10.1086/657660

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    Web page: http://www.journals.uchicago.edu/JLE/

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    Cited by:
    1. Tim Reuter, 2013. "Endogenous Cartel Organization and Antitrust Fine Discrimination," Working Paper Series of the Department of Economics, University of Konstanz 2013-09, Department of Economics, University of Konstanz.
    2. Gärtner, D.L. & Zhou, J., 2012. "Delays in Leniency Application: Is There Really a Race to the Enforcer’s Door?," Discussion Paper 2012-044, Tilburg University, Tilburg Law and Economic Center.
    3. Koski, Heli & Pajarinen, Mika, 2013. "Empirical Evaluation of the Effectiveness of Competition Policy," ETLA Working Papers 15, The Research Institute of the Finnish Economy.
    4. Frank Maier-Rigaud & Ulrich Schwalbe, 2013. "Quantification of Antitrust Damages," Working Papers 2013-ECO-09, IESEG School of Management.
    5. Zhou, J., 2012. "Endogenous Lysine Strategy Profile and Cartel Duration: An Instrumental Variables Approach," Discussion Paper 2012-009, Tilburg University, Tilburg Law and Economic Center.
    6. Roman Inderst & Frank Maier-Rigaud & Ulrich Schwalbe, 2013. "Quantifizierung von Schäden durch Wettbewerbsverstöße," Working Papers 2013-ECO-08, IESEG School of Management.
    7. Hyytinen, Ari & Steen, Frode & Toivanen, Otto, 2013. "Anatomy of Cartel Contracts," CEPR Discussion Papers 9362, C.E.P.R. Discussion Papers.

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