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Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach

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  • Zhou, Jun

Abstract

Colluding firms often exchange private information and make transfers within the cartels based on the information. Estimating the impact of such collusive practices— known as the “lysine strategy profile (LSP)†— on cartel duration is difficult because of endogeneity and omitted variable bias. I use firms’ linguistic differences as an instrumental variable for the LSP in 135 cartels discovered by the European Commission since 1980. The incidence of the LSP is not significantly related to cartel duration. After correction for selectivity in the decision to use the LSP, statistical tests are consistent with a theoretic prediction that the LSP increases cartel duration.

Suggested Citation

  • Zhou, Jun, 2012. "Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 369, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:369
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    More about this item

    Keywords

    the lysine strategy profile; post-agreement information exchange; within-cartel transfers; monitoring; verification and promotion of compliance; cartel duration; endogenous covariates;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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