Cartel Birth, Death, and Detection

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When do cartels form? What market conditions are conducive to cartel formation? How long do cartels last? In what markets can we expect cartels to persist for a long time? What are the implications of recessions for cartel activity? Are enforcement efforts, such as leniency programs, reducing the frequency of cartels? What new policies might prove effective?This award funds research into these and other questions using a combination of research methods. The PI will use a stochastic dynamic model of the birth and death of cartels to analyze the possible determinants of cartel duration and the frequency of cartels in an economy. The PI will use this birth-death process to simulate a panel data set of industries that includes some endogenous cartelization. The simulation model will be used to identify improved methods for estimating the probability of detection through data on discovered cartels; to provide an ex ante evaluation of the performance of various competition policies; and finally to discover useful proxies for the latent cartel rate to improve the ex post evaluation of cartel policies.The PI will also use qualitative research methods to develop new facts about cartel birth, death, and detection through the analysis of US and European cases and interviews with executives who have participated in cartel arrangements. The case analysis will better identify the true source of cartel detection. The interviews shed light on why firms chose to form a cartel and what caused it to break down.Broader impacts are fully integrated into the research, because the research questions are driven in part by the challenges faced by competition and antitrust enforcement agencies. Deterring and ending cartels is good for consumers, but it is difficult to evaluate the full benefit of these policies from observations limited to the population of observed cartels. The combination of research methods here will allow the PI to develop new recommendations for competition authorities in the US and also around the globe.