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Does Rigidity of Prices Hide Collusion?

  • Juan Luis Jiménez

    ()

    (Facultad de Economía, Empresa y Turismo, University of Las Palmas de Gran Canaria)

  • Jordi Perdiguero

    ()

    (Faculty of Economics, University of Barcelona)

Cartel detection is one of the most basic and most complicated tasks of competition authorities. In recent years, however, variance filters have provided a fairly simple tool for rejecting the existence of price-fixing, with the added advantage that the methodology requires only a low volume of data. In this paper we analyze two aspects of variance filters: (i) the relationship established between market structure and price rigidity, and (ii) the use of different benchmarks for implementing the filters. This paper addresses these two issues by applying a variance filter to a gasoline retail market characterized by a set of unique features. Our results confirm the positive relationship between monopolies and price rigidity, and the variance filter's ability to detect non-competitive behavior when an appropriate benchmark is used. Our findings should serve to promote the implementation of this methodology among competition authorities, albeit in the awareness that a more exhaustive complementary analysis is required.

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File URL: http://www.ub.edu/irea/working_papers/2011/201120.pdf
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Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 201120.

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Length: 40 pages
Date of creation: Oct 2011
Date of revision: Oct 2011
Handle: RePEc:ira:wpaper:201120
Contact details of provider: Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/

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