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Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance

In: THE ANALYSIS OF COMPETITION POLICY AND SECTORAL REGULATION

Author

Listed:
  • Joseph E. Harrington Jr.
  • Juan-Pablo Montero

Abstract

This study investigates when a cartel that uses a sales quota allocation scheme monitors more frequently than it enforces; for example, monitoring of sales is done on a weekly basis but firms are only required to comply with sales quotas on a quarterly basis. In a simple three-period quantity game with i.i.d cost and demand shocks, we show that the volatility of a cartel member's sales follows a U-shape within the compliance horizon. In comparison, sales volatility is constant over time under competition. This result offers a simple empirical test for distinguishing collusion from competition using sales data.

Suggested Citation

  • Joseph E. Harrington Jr. & Juan-Pablo Montero, 2014. "Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance," World Scientific Book Chapters, in: Martin Peitz & Yossi Spiegel (ed.), THE ANALYSIS OF COMPETITION POLICY AND SECTORAL REGULATION, chapter 7, pages 175-192, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814616362_0007
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    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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