'Incomplete Cartels and Antitrust Policy: Incidence and Detection', November 2009
A common assumption in the literature on cartels is that the cartel is all-inclusive. However, many known cartels did not include all firms in the relevant market. This thesis is about such incomplete cartels. It is organized around four main research questions: What explains optimal cartel size to be less than all-inclusive?, What (type of) firms take part in an incomplete cartel and what (type of) firms remain independent outsiders?, What is the relationship between industry structure and optimal cartel size? and, How can economics be used to detect (incomplete) cartels? It is found that the optimal cartel size is all-inclusive when colluding is costless, but less than all-inclusive when colluding is costly and the smallest firms in the industry are sufficiently small. Moreover, the incentive to take part in a cartel is positively correlated with firm size. Hence, we should not expect full collusion in an industry with one or more relatively small suppliers. In addition, the thesis explores ways in which economics can be used to detect incomplete conspiracies. The main focus is on industries that apply the so-called basing-point system. There are some real-world examples of incomplete cartels that abused this pricing method to protect their local markets against distant competitors. It is shown that the basing-points applied by a cartel differ from that of competitive firms and that collusive basing-point pricing is difficult to detect with known methods. Based on this, a novel detection test is developed that is hard to beat for cartels using this otherwise elusive form of price-fixing.