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How Much Do Cartels Overcharge?

  • Boyer, Marcel
  • Kotchoni, Rachidi

The estimation of cartel overcharges lies at the heart of antitrust policy on cartel prosecution as it constitutes a key element in the determination of fines. Connor and Lande (2008) conducted a survey of cartels and found a mean overcharge estimate in the range of 31% to 49%. By examining more sources, Connor (2010) finds a mean of 50.4% for successful cartels. However, the data used in those studies are estimates obtained from different methodologies, sources and contexts rather than by direct observations. Therefore, these data are subject to model error, estimation error and publication bias. A quick examination of the Connor database reveals that the universe of overcharge estimate is asymmetric, heterogenous and contains a number of influential observations. Beside the fact that overcharge estimate are potentially biased, fitting a linear regression model to the data without providing a carefull treatment of the problems raised above may produce distorted results. We conduct a meta-analysis of cartel overcharge estimate in the spirit of Connor and Bolotova (2006) while providing a sound treatment of these matters. We find a bias-corrected mean and median overcharge estimate of 15.76% and 16.43%. Clearly, our results have significant antitrust policy implications.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 14-462.

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Date of creation: 31 Jan 2014
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Handle: RePEc:tse:wpaper:27872
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  1. Marie-Laure Allain & Marcel Boyer & Rachidi Kotchoni & Jean-Pierre Ponssard, 2011. "The Determination of Optimal Fines in Cartel Cases The Myth of Underdeterrence," Working Papers hal-00631432, HAL.
  2. Marcel Boyer & Rachidi Kotchoni, 2011. "The Econometrics of Cartel Overcharges," CIRANO Working Papers 2011s-35, CIRANO.
  3. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, vol. 9(3), pages 283-294, February.
  4. James F. Nieberding, 2006. "Estimating overcharges in antitrust cases using a reduced-form approach: Methods and issues," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 361-380, November.
  5. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  6. Froeb, Luke M. & Koyak, Robert A. & Werden, Gregory J., 1993. "What is the effect of bid-rigging on prices?," Economics Letters, Elsevier, vol. 42(4), pages 419-423.
  7. Lawrence J. White, 1999. "Lysine and Price Fixing: How Long? How Severe?," Working Papers 99-02, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Marcel Boyer & Rachidi Kotchoni, 2012. "How Much Do Cartels Typically Overcharge?," CIRANO Working Papers 2012s-15, CIRANO.
  9. Catherine J. Morrison, 1990. "Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach," NBER Working Papers 3355, National Bureau of Economic Research, Inc.
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