Friday, April 12, 2013
Posted by D. Daniel Sokol
Ari Hyytinen University of Jyvaskyla - School of Business and Economics, Frode Steen, Norwegian School of Economics (NHH) - Department of Economics and Otto Toivanen, KU Leuven - Faculty of Business and Economics (FBE) have a very interesting paper on Anatomy of Cartel Contracts.
ABSTRACT: We study cartel contracts using data on 18 contract clauses of 109 legal Finnish manufacturing cartels. One third of the clauses relate to raising profits; the others deal with instability through incentive compatibility, cartel organization, or external threats. Cartels use three main approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how cartels deal with instability. Simplifying, we find that large cartels agree on prices, cartels in homogenous goods industries allocate markets, and small cartels avoid competition through specialization.