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Analyzing Collusion Using Set-Identified Marginal Cost Functions

Author

Listed:
  • Seiichiro Mizuta

    (Kobe University, Graduate School of Business Administration.)

  • Masato Nishiwaki

    (University of Osaka, Graduate School of Economics.)

Abstract

Wepropose an approach for analyzing markets in which firms are (suspected of) colluding. Our approach, which is based on set-identified marginal cost functions, enables us to screen for collusion and measure potential welfare losses caused by non-competitive behavior. The key idea is to exploit supernumerary (or excluded) instrumental variables that provide moment restrictions to falsify hypotheses about firm conduct and eliminate cost parameters implied by the falsified hypotheses. The resulting set of cost parameters that remain unfalsified under these restrictions functions as a screening tool for collusion. When competitive behavior is falsified, the corresponding parameter is excluded from the identified set. Additionally, the identified set can be used to measure potential welfare losses when competitive behavior is ruled out. This type of counterfactual welfare analysis is otherwise extremely difficult or nearly impossible to conduct.

Suggested Citation

  • Seiichiro Mizuta & Masato Nishiwaki, 2025. "Analyzing Collusion Using Set-Identified Marginal Cost Functions," Discussion Papers in Economics and Business 25-03, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2503
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    File URL: https://www2.econ.osaka-u.ac.jp/econ_society/dp/2503.pdf
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    More about this item

    Keywords

    collusion; set identification; marginal cost functions; interval regression;
    All these keywords.

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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