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The Econometrics of Cartel Overcharges

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  • Marcel Boyer

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, UdeM - Université de Montréal - Université de Montréal)

  • Rachidi Kotchoni

    (University of Alberta - [-])

Abstract

Connor and Lande (2006) conducted a survey of cartel overcharge estimates and found an average in the range of 31% to 49%. By examining more sources, Connor (2010b) finds a median of 23.3% for all type of cartels and a mean of 50.4% for successful cartels. However, the data used in these studies are estimates rather than true observations, since the true illegal profits of cartels are rarely observable. Therefore, these data are subject to model error, estimation error and publication bias. A quick glance at the Connor database reveals that the universe of overcharge estimates is asymmetric, heterogenous and contains a number of influential observations. Beside the fact that overcharge estimates are potentially biased, fitting a linear OLS model to the data without providing a careful treatment of the problems raised by the publication bias, outliers, asymmetry, and heterogeneity will necessarily produce distorted results. We conduct a meta-analysis of cartel overcharge estimates in the spirit of Connor and Bolotova (2006), but providing a sound treatment of the matters raised above. We find for cartels with initial overcharge estimates lying between 0% and 50%.a bias-corrected mean overcharge estimate of 13.6% with a median of 13.6% and for all cartels of all types a bias-corrected mean of 17.5% with a median of 14.1%.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00631429.

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Date of creation: 12 Oct 2011
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Handle: RePEc:hal:wpaper:hal-00631429

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Keywords: Cartels; Overcharges;

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  1. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, Elsevier, vol. 9(3), pages 283-294, February.
  2. Bolotova, Yuliya & Connor, John M. & Miller, Douglas J., 2005. "The Impact of Collusion on Price Behavior: Empirical Results from Two Recent Cases," 2005 Annual meeting, July 24-27, Providence, RI, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19164, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Lawrence White, 2001. "Lysine and Price Fixing: How Long? How Severe?," Review of Industrial Organization, Springer, Springer, vol. 18(1), pages 23-31, February.
  4. Valerie Y. Suslow, 1986. "Estimating Monopoly Behavior with Competitive Recycling: An Application to Alcoa," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 389-403, Autumn.
  5. Catherine J. Morrison, 1990. "Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach," NBER Working Papers 3355, National Bureau of Economic Research, Inc.
  6. John Connor, 2001. "“Our Customers Are Our Enemies”: The Lysine Cartel of 1992–1995," Review of Industrial Organization, Springer, Springer, vol. 18(1), pages 5-21, February.
  7. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
  8. John M. Connor, 2000. "Archer Daniels Midland:Price Fixer To The World," Working Papers, Purdue University, College of Agriculture, Department of Agricultural Economics 00-11, Purdue University, College of Agriculture, Department of Agricultural Economics.
  9. Sanjib Bhuyan & Rigoberto A. Lopez, 1997. "Oligopoly Power in the Food and Tobacco Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 79(3), pages 1035-1043.
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Cited by:
  1. Marie-Laure Allain & Marcel Boyer & Rachidi Kotchoni & Jean-Pierre Ponssard, 2011. "The Determination of Optimal Fines in Cartel Cases The Myth of Underdeterrence," Working Papers hal-00631432, HAL.
  2. Boyer, Marcel & Kotchoni, Rachidi, 2014. "How Much Do Cartels Overcharge?," TSE Working Papers, Toulouse School of Economics (TSE) 14-462, Toulouse School of Economics (TSE).
  3. Salvatore Piccolo & Giancarlo Spagnolo, 2014. "Debt, Managers and Cartels," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 365, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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