collusion

collusion - Price-Fixing and Repeated Games ECO 171 1...

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ECO 171 1 Price-Fixing and Repeated Games
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ECO 171 2 Collusion and cartels • What is a cartel? – attempt to enforce market discipline and reduce competition between a group of suppliers – cartel members agree to coordinate their actions • prices • market shares • exclusive territories – prevent excessive competition between the cartel members
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ECO 171 3 Collusion and cartels 2 • Cartels have always been with us; generally hidden – electrical conspiracy of the 1950s – garbage disposal in New York – Archer, Daniels, Midland – the vitamin conspiracy • But some are explicit and difficult to prevent –O P EC –D e B e e r s – shipping conferences
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ECO 171 4 Recent events • The 1990s saw record-breaking fines being imposed on firms found guilty of being in cartels – illegal conspiracies to fix prices and/or market shares – Archer-Daniels-Midland $100 million in 1996 – UCAR $110 million in 1998 – Hoffman-LaRoche $500 million in 1999
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ECO 171 5 Recent cartel violations International $10 1997 Sodium Gluconate Akzo Nobel Chemicals BV & Glucona BV International $10.5 1998 Vitamins Lonza AG International $11 1997 Citric Acid Jungblunzlauer International International $11 1998 Sorbates Eastman Chemical Co. International $14 1997 Citric Acid F. Hoffman-LaRoche Ltd. Domestic $15 1996 Explosives Dyno Nobel International $15 1998 Marine Transportation Dockwise N.V. International $20 1998 Sodium Gluconate Fujisawa Pharmaceuticals Co. International $32.5 1998 Graphite Electrodes Showa Denko Carbon Inc. International $36 1998 Sorbates Hoechst AG International $49 1998 Marine Construction HeereMac v.o.f. International $50 1997 Citric Acid Haarman & Reimer Corp. International $100 1997 Lysine and Citric Acid Archer Daniels Midland co. International $110 1998 Graphite Electrodes UCAR International Inc. International $135 1999 Graphite Electrodes SGL Carbon AG International $225 1999 Vitamins BASF AG (1999) International $500 1999 Vitamins F. Hoffman-LaRoche Ltd.
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ECO 171 6 Recent cartel violations 2 Fines steadily grew during the 1990s 0 100 200 300 400 500 600 700 800 900 1000 Criminal Fines ($ million) 1994 1995 1995 1996 1997 1998 1999 Fiscal Year
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ECO 171 7 Cartels • Two implications – cartels happen – generally illegal and yet firms deliberately break the law • Why? – pursuit of profits • But how can cartels be sustained? – cannot be enforced by legal means – so must resist the temptation to cheat on the cartel
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ECO 171 8 The incentive to collude • Is there a real incentive to belong to a cartel? • Is cheating so endemic that cartels fail? • If so, why worry about cartels? • Simple reason – without cartel laws legally enforceable contracts could be written De Beers is tacitly supported by the South African government • gives force to the threats that support this cartel – not to supply any company that deviates from the cartel • Investigate – incentive to form cartels – incentive to cheat – ability to detect cartels
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ECO 171 9 An example • Take a simple example
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This note was uploaded on 10/15/2008 for the course ECON 171 taught by Professor Hopenhayn during the Winter '07 term at UCLA.

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collusion - Price-Fixing and Repeated Games ECO 171 1...

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