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Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing

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Author Info
Iwan Bos (University of Amsterdam)
Maarten Pieter Schinkel () (University of Amsterdam)
Abstract

Basing-point pricing is known to have been abused by geographically dispersed firms in order to eliminate competition on transportation costs. This paper develops a topographic test for collusive basing-point pricing. The method uses transaction data (prices, quantities) and customer project site locations to recover the basing-point(s) from which delivered prices were calculated. These bases are compared to the locations of the production mills in a test that discriminates between competitive and collusive basing-point pricing. We define a measure for the likelihood of collusion that can be used to screen industries that traditionally apply delivered pricing for the presence of cartels. We operationalize this screen with a software. The test is hard to beat for cartels using this otherwise elusive form of price-fixing. When a cartel was found to have abused the basing-point system, our method can be used to estimate antitrust damages.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-007/1.

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Date of creation: 20 Jan 2009
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Handle: RePEc:dgr:uvatin:20090007

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Web page: http://www.tinbergen.nl/

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Related research
Keywords: basing-point pricing; cartels; detection; antitrust; damages;

Find related papers by JEL classification:
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing

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  1. Margaret C. Levenstein & Valerie Y. Suslow, 2006. "What Determines Cartel Success?," Journal of Economic Literature, American Economic Association, vol. 44(1), pages 43-95, March. [Downloadable!] (restricted)
  2. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 651-673, Winter.
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  3. Robert H. Porter & J. Douglas Zona, 1999. "Ohio School Milk Markets: An Analysis of Bidding," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 263-288, Summer. [Downloadable!] (restricted)
    Other versions:
  4. Abrantes-Metz, Rosa M. & Froeb, Luke M. & Geweke, John & Taylor, Christopher T., 2006. "A variance screen for collusion," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 467-486, May. [Downloadable!] (restricted)
  5. Maarten Pieter Schinkel & Jan Tuinstra & Jakob Rüggeberg, 2008. "Illinois Walls: how barring indirect purchaser suits facilitates collusion," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 683-698. [Downloadable!] (restricted)
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  6. Soper, Jean B, et al, 1991. "Basing Point Pricing and Production Concentration," Economic Journal, Royal Economic Society, vol. 101(406), pages 539-56, May. [Downloadable!] (restricted)
  7. Maria Paz Espinosa, 1992. "Delivered Pricing, FOB Pricing, and Collusion in Spatial Markets," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 64-85, Spring. [Downloadable!] (restricted)
  8. Patrick Bajari & Lixin Ye, 2003. "Deciding Between Competition and Collusion," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 971-989, November. [Downloadable!] (restricted)
    Other versions:
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