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Effects of different cartel policies: Evidence from the German power-cable industry

  • Normann, Hans-Theo
  • Tan, Elaine S.

We analyze the effects of cartel policies on firm behavior using data from the German power-cable cartel. Antitrust authorities affected the cartel under two different legal regimes: penalizing the cartel in some years, and exempting it for ten years from the general cartel prohibition. While penalties did not reduce prices or profits, making collusion legal raised profits by at least 16% each year, compared to the time when the illegal cartel was not prosecuted. The threat of penalties was sufficient to reduce profit from collusion. The intended efficiency gains from rationalization, which was the justification for legalizing the cartel, did not materialize.

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 108.

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Date of creation: 2013
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Handle: RePEc:zbw:dicedp:108
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  1. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  2. Baker, Jonathan B, 1989. "Identifying Cartel Policing under Uncertainty: The U.S. Steel Industry, 1933-1939," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages S47-76, October.
  3. Binder, John J, 1988. "The Sherman Antitrust Act and the Railroad Cartels," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 443-68, October.
  4. Nocke, Volker & White, Lucy, 2004. "Do Vertical Mergers Facilitate Upstream Collusion?," CEPR Discussion Papers 4186, C.E.P.R. Discussion Papers.
  5. Jonathan B. Baker, 2003. "The Case for Antitrust Enforcement," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 27-50, Fall.
  6. Joseph E. Harrington, 2005. "Optimal Cartel Pricing In The Presence Of An Antitrust Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 145-169, 02.
  7. George J. Stigler & James K. Kindahl, 1970. "The Behavior of Industrial Prices," NBER Books, National Bureau of Economic Research, Inc, number stig70-1, June.
  8. Lars-Hendrik R�ller & Frode Steen, 2006. "On the Workings of a Cartel: Evidence from the Norwegian Cement Industry," American Economic Review, American Economic Association, vol. 96(1), pages 321-338, March.
  9. Feinberg, Robert M, 1980. "Antitrust Enforcement and Subsequent Price Behavior," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 609-12, November.
  10. Sproul, Michael F, 1993. "Antitrust and Prices," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 741-54, August.
  11. Haucap, Justus & Heimeshoff, Ulrich & Schultz, Luis Manuel, 2010. "Legal and illegal cartels in Germany between 1958 and 2004," DICE Discussion Papers 08, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  12. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
  13. Alexander, Barbara J., 1997. "Failed Cooperation in Heterogeneous Industries Under the National Recovery Administration," The Journal of Economic History, Cambridge University Press, vol. 57(02), pages 322-344, June.
  14. Dick, Andrew R, 1996. "When Are Cartels Stable Contracts?," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 241-83, April.
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