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

  • Joseph E. Harrington, Jr.
  • Juan-Pablo Montero

    ()

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

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    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 iid 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.

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    File URL: http://www.economia.puc.cl/docs/dt_446.pdf
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    Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 446.

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    Date of creation: 2013
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    Handle: RePEc:ioe:doctra:446
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    1. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, 06.
    2. Joseph E. Harrington & Andrzej Skrzypacz, 2011. "Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices," American Economic Review, American Economic Association, vol. 101(6), pages 2425-49, October.
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