Identifying Participants in a Price-fixing Conspiracy: Output and Market Share Tests Reexamined
: If there is a cartel agreement among a subset of firms in an industry, it should be predicted that all firms in that industry will increase prices. Nevertheless, industry prices alone should not indicate that a particular firm is guilty of that conspiracy. According to the output test and its market share variant if the output or the market share of the firm that claims to be innocent in the collusive activity rises in response to the price increase, that firm's claim should be accepted as true. Using a collusive variant of the dominant firm model, this paper shows that these are not robust tests to reveal innocence or guilt, and characterizes cases where they may pardon a guilty firm (Type I error) or indict an innocent firm (Type II error). This paper also shows that a market share test can not be used to prove a dominant firm's intent for predatory pricing JEL Classification: G18, L41, K42 Keywords: Dominant firm, collusion, predatory pricing, output test, market share test, antitrust
|Date of creation:||24 Mar 1995|
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- Gaskins, Darius Jr., 1971. "Dynamic limit pricing: Optimal pricing under threat of entry," Journal of Economic Theory, Elsevier, vol. 3(3), pages 306-322, September.
- Besanko, David & Spulber, Daniel F, 1989. "Antitrust Enforcement under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 99(396), pages 408-425, June.
- Baron, David P, 1973. "Limit Pricing, Potential Entry, and Barriers to Entry," American Economic Review, American Economic Association, vol. 63(4), pages 666-674, September.
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