Detecting Collusion. The Cartel Index Applied to the Dutch Economy.

Abstract

Illegal cartels and other collusive agreements are welfare reducing and exist everywhere in the economy. It is therefore important that we detect and prosecute such collusive behavior in order to increase the competitiveness of the economy. In this thesis a method is developed to detect the location of collusive behavior. This method, called the Cartel Index, can be used by competition authorities complementary to other instruments such as leniency programs.The Cartel Index screens all sectors of the economy using nine easily measurable indicators of collusion. These indicators are selected from a comprehensive list of available indicators of collusion identified by theoretical and empirical literature. From these nine indicators an index is constructed which gives an indication of the likelihood of collusion existing in a certain sector.With the use of publicly available data the index is then applied to the Dutch economy and compared to various other indices of competitiveness. It showed us that the index can help us to determine in which sectors collusion is most likely, but that a more thorough study of an identified sector is necessary to verify the existence of collusion.The detection method developed in this thesis could be used by the Netherlands Competition Authority as a tool to prioritize sector investigations.