Collusive Behavior Research Articles

A framework for fraud discovery via illicit agreements in energy markets

Fundamental changes in the electrical energy sector are drawing on serious implications leading to high heterogeneity in both supply and demand. One focal point in transitioning to the smart grid vision is the liberalization and deregulation of electricity markets, which are undergoing a transforma tion towards accommodating a more decentralized and sustainable provision of energy. As the number of traders in the market is increasing steadily and the trading activities are becoming more complex, the energy markets are becoming more exposed to potential fraud. In this paper we address the problem of detecting collusive behavior, where a group of individual traders act together, inconsistently with the competitive model, to artificially manipulate the market and elicit illegal profits. We investigate collusion attacks in the energy market and propose a novel mechanism, showing the effectiveness and practical applicability of our method to real scenarios. Thus, while economic analysis does not imply proving guilt, it can be instrumental in making decisions about identifying market participants worthy of closer inspection from appointed antitrust authorities.

SCREENING FOR COMPETITION FAILURES: SOME REMARKS ON HORIZONTAL ANTICOMPETITIVE BEHAVIOR VISUAL DETECTION

Anticompetitive horizontal behaviors are very common and harmful for economy as a whole and consumer welfare especially. Such behaviors in most cases mean collusion. Pro-active anticompetitive policy we want to realize implies monitoring of huge set of markets and industries. As preliminary selection is possible on a basis of number of factors that enhanced collusion, there could be still big set of industries left. There is a necessity then for methods of collusion’s detection which would be quick, resource — saving and understandable for economists, experts and lawyers without quantitative experience. We described here fairly simple but meaningful, graphical tools which could be used in process of screening for collusive behavior in the markets. We underlined that ability of graphical inspection depends on statistical/econometric tool of choice for particular screen, so we see a need for research and popularization of tools with that property.

Interest rate pass through and asymmetries in retail deposit and lending rates: An analysis using data from Colombian banks

Using a sample of Colombian banks, we examine retail interest rate adjustment in response to changes in wholesale interest rates. Interest rate pass through running from wholesale to retail rates is found to be both partial and heterogeneous across banks. This suggests that the effectiveness of monetary policy is limited. Further investigation reveals that the behaviour of retail deposit rates appears consistent with collusive behaviour between banks insofar as interest rates are more rapidly adjusted downwards than upwards. In the case of retail lending rates, it appears that banks more rapidly reduce than increase rates. This suggests that expansionary monetary policy in Colombia may be relatively more effective than contractionary policy.

Bertrand versus Cournot with convex variable costs

Within a simple model of homogeneous oligopoly, we show that the traditional ranking between Bertrand and Cournot equilibria may be reversed. For price setting entails a continuum of price equilibria under convex variable costs, departure from marginal cost pricing may be observed. As a consequence, Bertrand–Nash equilibrium profits (welfare) may be higher (lower) than Cournot–Nash ones. The reversal of the standard rankings occurs when pricing strategies mimic collusive behaviour.

Is Price Transmission in the Indian Pulses Market Asymmetric?

Pulses form an integral part of the Indian diet. In the recent past, the domestic wholesale-retail price differential has risen rapidly. The retail prices continued to increase without responding to any changes at the wholesale level. The government enquiry into the same suspected collusive behaviour amongst the major traders. This article attempts to test for asymmetric wholesale to retail price transmission in India using the threshold autoregression and momentum threshold autoregression models for four commonly consumed pulses: arhar, moong, masur and urad. We find that the asymmetric price transmission does characterize the market for pulses. The wholesale and retail prices behave independent of each other in the short-run. The results support the hypothesis of imperfect agricultural markets which lends credence to the audit report of the Comptroller and Auditor General (CAG) of India.

Damages claims in the Spanish sugar cartel

As an example of collusive behaviour in the sugar industry, this paper looks at the Spanish sugar cartel, uncovered and sanctioned by the Spanish competition authority. It then turns into the subsequent private enforcement actions that concluded successfully last year with a €5 million award in damages by the Supreme Court. Several lessons can be extracted from the Supreme Court’s decisions that will have an impact in future private claims for damages arising from competition law violations. They clarify the relevance and legal force of public enforcement decisions for private enforcement, how damages’ calculations should be done, and how expert forensic opinions on the matter should be assessed by the courts and, finally, they rule on the availability of the passing-on defence. In all, the Spanish Supreme Court dicta from its decisions in the sugar cartel case may well open the gateway for new private claims in the future.

Detecting Collusion in Spatially Differentiated Markets

The empirical literature on mergers, market power and collusion in differentiated markets has mainly focused on methods relying on output and/or panel data. In contrast to this literature we suggest a novel approach that allows for the detection of collusive behavior among a group of firms making use of information on the spatial structure of horizontally differentiated products. By estimating best response functions using a spatial econometrics approach, we focus on differences in the strategic interaction in pricing between different groups of firms as well as on differences in price levels. We apply our method to the market for ski lift tickets using a unique data set on ticket prices and detailed resort-specific characteristics covering all ski resorts in Austria. (authors' abstract)

The Market for Paintings in Paris between Rococo and Romanticism

SummaryWe analyze art pricing in a unique dataset on Paris auctions between 700s and 800s. Prices reflect the objective features of the paintings and of the sale, and they reveal a substantial death effect, with upward jumps in the years after the death of the artists. Both the hedonic and repeated sale price indexes show a declining pattern for the price of paintings (relative to the cost of living) starting with the French Revolution. On this basis, we analyze the emerging role and market power of art dealers and employ network theory to study whether they created rings to manipulate the outcome of the auctions for their profits. Dealers appear to have been divided into four main communities heavily trading between themselves and we find evidence of collusive behavior with lower hammer prices for buyers belonging to the same community of the dealers organizing the auction.

Determinants of Tacit Collusion in aCournot Duopoly Experiment

We contribute to a growing literature that examines the relationship between the nature of strategic interaction and collusive behavior. We present results from a repeated Cournot duopoly experiment with treatments in which quantity choices are either strategic complements or substitutes. The initial underlying demand function allows for direct comparison with previous work utilizing a Bertrand duopoly setting. We find some evidence of collusion in the substitutes treatment, but no collusion in the complements treatment. We study an additional substitutes treatment to control for the absolute slope of the reaction functions across treatments, where we again find evidence of collusive behavior. However, using an alternate demand function parameterization where the goods are less closely related, we find no evidence of collusive behavior in either the substitutes or the complements treatment.

Determinants of Tacit Collusion in a Cournot Duopoly Experiment

We contribute to a growing literature that examines the relationship between the nature of strategic interaction and collusive behavior. We present results from a repeated Cournot duopoly experiment with treatments in which quantity choices are either strategic complements or substitutes. The initial underlying demand function allows for direct comparison with previous work utilizing a Bertrand duopoly setting. We find some evidence of collusion in the substitutes treatment, but no collusion in the complements treatment. We study an additional substitutes treatment to control for the absolute slope of the reaction functions across treatments, where we again find evidence of collusive behavior. However, using an alternate demand function parameterization where the goods are less closely related, we find no evidence of collusive behavior in either the substitutes or the complements treatment.

Modeling Dynamic Trust and Risk Evaluation Based on High-Order Moments

This paper proposes a dynamic trust and risk evaluation model based on high-order moments. The credibility of an entity is measured with trust degree and risk value comprehensively. Firstly, considering the dynamic and time decay characters of trust, a time attenuation function is defined, and direct trust is further expressed. Subsequently, in order to improve the accuracy of feedback trust, a filter mechanism is constructed to eliminate the false feedback, combining coefficient of skewness with hypothesis test. More importantly, the weights of direct trust and feedback trust are derived subjectively and adaptively with the moments and frequency of direct interactions. Furthermore, risk is evaluated with direct risk and feedback risk, which are obtained by mainly using coefficient of variation and coefficient of kurtosis. Risk value can be used to measure the stability of providing services. Simulation results show that the proposed model not only has high accuracy, but also resists effectively collusive attacks and strategic malicious behaviors.

A Hierarchical Reputation Evidence Decision System in VANETs

In VANETs, users are rational, independent, and selfish. Stimulation-based reputation management system is critical for them to avoid selfishness and promote network performance in large-scale VANETs. The current reputation mechanisms produce some problems, for example, overfull energy consumptions, confused collusion, and misreport. In order to detect selfish and collusive behaviors accurately and quickly, we propose a dynamic three-layer reputation evidence decision and management mechanism, which combine with Dempster-Shafer evidence integration mechanism to distinguish selfish nodes. In particular, the system helps in collusion avoidance through reporting falsified reputation evidences of colluders. In addition, we borrow ideas from Weber-Fechner’s law and design an adaptive reputation evidence gathering cycle for prolonging the lifetime of detector and overwhelming frequent polling for reputation evidences. The simulation results demonstrate that REDS has higher detection speed for selfish nodes and collusive observers and less network traffic of gathering reputations.

Bertrand versus Cournot with Convex Variable Costs

Within a simple model of homogeneous oligopoly, we show that the traditional ranking between Bertrand and Cournot equilibria may be reversed. For price setting entails a continuum of price equilibria under convex variable costs, departure from marginal cost pricing may be observed. As a consequence, Bertrand-Nash equilibrium profits (welfare) may be higher (lower) than Cournot-Nash ones. The reversal of the standard rankings occurs when pricing strategies mimic collusive behaviour.

Managerial Collusive Behavior under Asymmetric Incentive Schemes

AbstractWe analyze the effects of asymmetry in incentive contracts on the possibility of collusion between managers. When their compensation is based on the relative performance evaluation contracts, managers can achieve better outcomes by colluding. Using the concept of balanced temptation introduced by

Collusion Between Supervision Unit and Contractor in Construction Project Based on Evolutionary Game Theory

The behavioral strategy option of project-based organizations directly influences the quality of construction project. Based on the behavioral game model for the owner, supervision unit and contractor, and analysis of mixed strat- egy Nash equilibrium for the model, under the analysis framework that project-based organizations' bounded rationality, this paper treats the supervision unit and contractor as a benefit community, the benefits matrix was constructed for the owner and community, and analyzed the interaction mechanism and stable state between them with evolutionary game theory. The results shows that, in the evolutionary game system constituted with the owner and community, the stable state of construction project agent collusion is related to certain critical factors including the benefit and loss for collusion behavior, the supervision cost for the owner, the punishment rate from the owner and etc., and affected by the strategy op- tion of counter-player and original state of the game system. Finally, several measures for prevent agents' collusion are proposed.

Strategyproof Mechanisms for Purchasing a Shared Resource

Consider a situation where a group of buyers would like to jointly purchase a particular resource with the intention of sharing it. For example, suppose two individuals who are sharing a living space would like to purchase an object, say an air conditioner or a television, which is available in the market for a certain price. How do they agree upon a division of this price amongst themselves when their utilties for using that object are private? Any scheme that recommends some notion of fair division of this price has to rely on the ability of the scheme to elicit the true utilities of the individuals, which is difficult since each individual wants to minimize his share of the payment. More generally, the resource in question may be congestible, and the utilities may depend on the proportion in which it is shared between the two users. In that case they not only have to decide how to divide the price of the resource but also how it will be shared, and the two decisions would naturally have to go hand in hand. Moreover, it may not be a simple question of paying a given price, but the resource itself may be offered in an auction, in which case the two buyers need to decide how they will jointly bid in the auction, along with the terms of sharing the resource and the division of payment in the event that they win. Embracing the classical perspective of mechanism design, we can transfer the onus of coming up with a solution to this problem from the buyers to the seller herself. This leads us to consider the converse problem from the perspective of the seller in the market. She intends to sell a resource and several competing groups of buyers are interested in purchasing that resource for their respective groups. Her problem is thus to design a mechanism to allocate the resource to one of the competing groups, along with a proposed division of the resource within the group. The key aspect of this design problem is the kind of incentive properties such a mechanism needs to satisfy. The buyers in a single group are expected to collude in their utility reports and hence such a mechanism needs to be robust to any collusive behavior within a particular group, but perhaps not necessarily across groups. A practical example, which is our primary motivation for studying this kind of a market, is the market for radio spectrum. Recently there has been a debate concerning the merits and demerits of allocating newly opened blocks of spectrum for free unlicensed use (like WiFi) as opposed to selling them for exclusive licensed use (e.g., to cellular ser-

Airline strategic alliances in overlapping markets: Should policymakers be concerned?

When there is significant overlap in potential partner airlines׳ route networks, policymakers have expressed concern that an alliance between such airlines may facilitate collusion on price and/or service levels in the partners׳ overlapping markets. The contribution of our paper is to put together a structural econometric model that is able to explicitly disentangle the demand and supply effects associated with an alliance between such airlines. The estimates from our structural econometric model do identify demand-increasing effects associated with the Delta/Continental/Northwest alliance, but statistically reject collusive behavior between the partners.

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

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.

Damagess Claims in the Spanish Sugar Cartel

As an example of collusive behaviour in the sugar industry, this paper looks at the Spanish sugar cartel, uncovered and sanctioned by the Spanish competition authority. It then turns into the subsequent private enforcement actions that concluded successfully last year with a €5 million award in damages by the Supreme Court. Several lessons can be extracted from the Supreme Court’s decisions that will have an impact in future private claims for damages arising from competition law violations. They clarify the relevance and legal force of public enforcement decisions for private enforcement, how damages’ calculations should be done, and how expert forensic opinions on the matter should be assessed by the courts and, finally, they rule on the availability of the passing-on defence. In all, the Spanish Supreme Court dicta from its decisions in the sugar cartel case may well open the gateway for new private claims in the future.

Works Councils: An Agency Perspective

This paper investigates the role of works councils in a simple agency framework in whichworks councils are supposed to monitor manager's information on behalf of the workforce,but they are independent agents who might pursue their private interest. First, we considerthat workers can incentivize works councils through contingent monetary payments. In orderto deter collusion, workers must pay higher compensations in states of nature where they canbe expropriated by potential coalitions among works councils and management. Collusionmakes contingent payments costly and reduces workers' payoffs. Second, when elections areused to align works councils' interest only well compensated representatives would face aninter-temporal trade-off between accepting management's transfers at first period and losingrents at the second period. Elections increase the cost of entering on collusive behaviour withmanagement and works councils will try to behave on the employees' interest.