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Hit Where It Hurts: Cartel Policing Using Targeted Sales and Supply Embargoes

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  • Ajay Bhaskarabhatla
  • Chirantan Chatterjee
  • Bas Karreman

Abstract

In this paper, we examine an asymmetric-punishment strategy that a large and newly identified cartel of retailers uses to police its upstream suppliers and members. The cartel punishes suppliers who violate vertical restraints and members who defect in the key regional or product market where it hurts them the most. The cartel organizes sales embargoes to punish its suppliers and supply embargoes to punish its members. Cartels can leverage the targeted punishment strategy to induce good behavior across multiple product, regional, and vertical markets. We examine several episodes in which the association of retail pharmaceutical traders in India, acting as a cartel, imposes sales embargoes on select pharmaceutical firms and supply embargoes on its members, and we find evidence consistent with targeted punishment. Our results support the theoretical view that growing buyer power in conjunction with vertical restraints facilitates collusion.

Suggested Citation

  • Ajay Bhaskarabhatla & Chirantan Chatterjee & Bas Karreman, 2016. "Hit Where It Hurts: Cartel Policing Using Targeted Sales and Supply Embargoes," Journal of Law and Economics, University of Chicago Press, vol. 59(4), pages 805-846.
  • Handle: RePEc:ucp:jlawec:doi:10.1086/691093
    DOI: 10.1086/691093
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    Cited by:

    1. Arzi Adbi & Chirantan Chatterjee & Matej Drev & Anant Mishra, 2019. "When the Big One Came: A Natural Experiment on Demand Shock and Market Structure in India's Influenza Vaccine Markets," Production and Operations Management, Production and Operations Management Society, vol. 28(4), pages 810-832, April.
    2. Mayank Aggarwal & Anindya S. Chakrabarti & Chirantan Chatterjee, 2023. "Movies, stigma and choice: Evidence from the pharmaceutical industry," Health Economics, John Wiley & Sons, Ltd., vol. 32(5), pages 1019-1039, May.
    3. Andreas Freitag & Catherine Roux & Christian Thöni, 2021. "Communication And Market Sharing: An Experiment On The Exchange Of Soft And Hard Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 175-198, February.
    4. Aggarwal, Mayank & Chakrabarti, Anindya S. & Chatterjee, Chirantan & Higgins, Matthew J., 2023. "Research and market structure: Evidence from an antibiotic-resistant pathogenic outbreak," Research Policy, Elsevier, vol. 52(1).
    5. Ajay Bhaskarabhatla & Priyatam Anurag & Chirantan Chatterjee & Enrico Pennings, 2021. "How Does Regulation Impact Strategic Repositioning by Firms Across Submarkets? Evidence from the Indian Pharmaceutical Industry," Strategy Science, INFORMS, vol. 6(3), pages 209-227, September.
    6. Chatterjee, Chirantan & Mohapatra, Debi Prasad & Estay, Manuel, 2019. "From courts to markets: New evidence on enforcement of pharmaceutical bans in India," Social Science & Medicine, Elsevier, vol. 237(C), pages 1-1.

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