Thursday, February 23, 2012
Posted by D. Daniel Sokol
Jun Zhou (University of Bonn, University of Tilburg) explores Endogenous Lysine Strategy Proﬁle and Cartel Duration: An Instrumental Variables Approach.
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.