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Equilibrium Transition and Cartel Formation: A Structural Analysis of Chile's Pharmacy Cartel

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  • Yu

    (Jasmine)

  • Hao

Abstract

This paper studies how Chile's three largest pharmacy chains moved from the price war to collusion, using court-record daily prices and a structural model. After a court-ordered advertisement ban ended the comparison campaign, the estimated gain from loss-leader pricing fell sharply, weakening the incentive to continue the price war. The chains then used an upstream supplier as intermediary to verify a collusive price-leadership procedure. Once verified, they applied it to restore margins on former loss leaders. They then raised prices further to extract rents. These increases spread more slowly than margin restoration. The Adaptive Confidence specification allows a subjective belief about follower participation to update. It more closely matches the cumulative spread of rent extraction than the Unit Confidence specification. Unit Confidence imposes the rational-belief benchmark by fixing the leader's weight at one.

Suggested Citation

  • Yu & Hao, 2026. "Equilibrium Transition and Cartel Formation: A Structural Analysis of Chile's Pharmacy Cartel," Papers 2609.14487, arXiv.org.
    • Handle: RePEc:arx:papers:2609.14487
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    File URL: https://arxiv.org/pdf/2609.14487
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