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

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  • Iwan Bos

    (University of Amsterdam)

  • Maarten Pieter Schinkel

    (University of Amsterdam)

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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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Bibliographic Info

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

Related research

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

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References

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  1. Robert Porter, 2005. "Detecting Collusion," Review of Industrial Organization, Springer, vol. 26(2), pages 147-167, December.
  2. Patrick Bajari & Lixin Ye, 2001. "Deciding Between Competition and Collusion," Working Papers 01008, Stanford University, Department of Economics.
  3. Rüggeberg, J. & Schinkel, M.P. & Tuinstra, J., 2005. "Illinois Walls: How barring indirect purchaser suits facilitates collusion," CeNDEF Working Papers 05-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  4. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-38, June.
  5. Joseph E. Harrington, Jr., 2003. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Computing in Economics and Finance 2003 26, Society for Computational Economics.
  6. Cabou, Christian G & Haddock, David D & Thorne, Michele H, 1992. "An Analytic History of Delivered Price Litigation: Do Courts Properly Distinguish Rivalrous from Collusive Instances?," Economic Inquiry, Western Economic Association International, vol. 30(2), pages 307-21, April.
  7. Soper, Jean B, et al, 1991. "Basing Point Pricing and Production Concentration," Economic Journal, Royal Economic Society, vol. 101(406), pages 539-56, May.
  8. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
  9. 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.
  10. 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.
  11. repec:aea:jeclit:v:44:y:2006:i:1:p:43-95 is not listed on IDEAS
  12. 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.
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