Cartels and Collusion: Empirical Evidence

Cartels occur in a wide range of products and industries and engage in a range of behaviors in their efforts to increase profits. This chapter discusses the variety of techniques that cartels use to set prices. They may agree to a minimum price, target prices, or specific increases (or even decreases). The timing of price announcements may be intentionally manipulated to disguise collusive activity. Cartels engage in specific behaviors that facilitate monitoring of one another's pricing. Successful collusion thus requires extensive communication, both via private and public signals. The most important determinant of cartel breakup is effective antitrust policy. Theory suggests that cartels break up as a result of cheating by member firms tempted by short-term profits, but empirical analysis rarely finds cheating that destroys cartels. Neither cartel breakup nor cartel formation appears highly correlated with the business cycle.