Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Tuesday, March 13, 2012

Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach

Posted by D. Daniel Sokol

Jun Zhou, Bonn University, Wirtschaftspolitische Abteilung, Tilburg Law and Economics Center (TILEC) discusses Cartel Duration and Endogenous Private Monitoring and Communication: 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.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/03/cartel-duration-and-endogenous-private-monitoring-and-communication-an-instrumental-variables-approa.html

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