Price Collusion Research Articles

The impact of cartel dissolution on prices: Evidence from the air cargo cartel

I analyze pricing behavior before and after the detection of an air cargo cartel using a novel, hand-collected dataset. I find that prices did not decline after the cartel's detection. Additionally, pricing patterns are consistent with post-cartel tacit collusion. My findings suggest that airlines' cartel activity (specifically, the development of a methodology for determining the collusive price) laid a foundation for future tacit collusion. As a result, airlines profited from cartel activity, and shippers paid elevated prices, long after the cartel's dissolution.

Competition Law and Artificial Intelligence: Solution or Threat

This article discusses the solutions and threats posed by artificial intelligence in the context of business competition law. The findings of this article indicate that artificial intelligence presents both challenges and opportunities in this field. While artificial intelligence can enhance competition by increasing efficiency and fostering innovation, it raises concerns about market dominance and collusion. Consequently, the KPPU must adapt to these complexities to ensure fair competition and protect consumers. Balancing innovation with competitive enforcement is essential to leveraging the benefits of artificial intelligence while mitigating potential threats as artificial intelligence becomes more prevalent in the market. Based on these findings, the authors recommend that the KPPU increase its oversight of artificial intelligence-related activities to ensure compliance with business competition laws. The KPPU should look for evidence of anti-competitive behavior driven by artificial intelligence, such as price collusion through price monitoring and algorithmic matching software, by amending Law No. 5 of 1999. The KPPU enforces laws and regulations to address the impact of artificial intelligence on business competition law. For instance, the European Union’s Digital Markets Act empowers the European Commission to request algorithms, data about their testing, and explanations about their use from companies designated as competition gatekeepers.

AI Pricing: Adoption of Artificial Intelligences and Collusive Price

With the growing integration of artificial intelligence (AI) in determining pricing strategies, there is an increasing concern about its potential to foster collusive behavior. Harrington (2012, 2018) underscores the challenge: if AI proves more adept at tacit collusion than humans or if AI-driven collusion is inherently tacit, then it presents a significant hurdle for prosecution under the prevailing interpretation of US antitrust laws. Validating these concerns, Assad et al. (2020) observed collusive price surges linked to the adoption of pricing algorithms among German gas stations. Drawing from game theory—specifically the repeated game paradigm—this paper crafts a foundational mathematical model to analyze competition versus collusion dynamics. It also evaluates the resultant welfare implications of both scenarios. The paper further delves into the broader challenges posed by AI-powered pricing and advocates for potential policy countermeasures, including algorithmic regulation and collusion detection mechanisms.

Collusive Price Leadership Among Firms with Different Discount Factors

Abstract This paper analyzes the effect of price leadership on collusion among firms with different discount factors. We first find that price leadership relaxes the incentive constraints for collusion. We then derive a dynamic collusion path in which the firms with lower discount factors initially occupy the largest market share and then gradually cede it to the firms with higher discount factors. This collusion path is shaped by the conflicting forces of fairness and efficiency. Additionally, price leadership can restore the efficiency implied by differentiated time preferences in repeated games.

Competitor Coupons: A Remedy for Residual Collusion

Abstract There are well-documented episodes of prices remaining at supracompetitive levels even after a cartel was shut down by the competition authority. As long as market conditions remain reasonably stable, collusive prices may still be incentive compatible so the collusive equilibrium could continue after firms are no longer engaging in illicit communications. This situation poses a challenging dilemma: consumer harm persists because of past unlawful conduct but there is no apparent recourse. This paper offers a remedy in the form of coupons. As part of the penalty imposed by the competition authority, each cartel member is required to distribute coupons to its past purchasers. Contrary to their usual form, these coupons can only be used to buy from a firm’s competitors. I show how this temporary intervention can help destabilize collusion and restore competition.

Market Structure and Market Behavior Analysis of Anti-Monopoly of Platform Economy

Monopoly and anti-monopoly regulation in the field of platform economy has gradually become a hot and difficult issue of global concern. Based on the competitive monopoly market structure of the platform economy, algorithmic price discrimination, algorithmic price collusion, exclusive monopoly agreements and prohibitions, and other price and nonprice market behaviors, this paper conducts a case study on the relationship between the special market structure, market behavior, and anti-monopoly regulation in the field of the platform economy. The study finds that the market behavior of the Platform economy is relatively independent of the market structure. The market structure of digital platforms is effective, realizing the transformation of the Marshall Conflict. The focus of anti-monopoly regulation of the Platform economy should be on market behavior.

Periodization of the development of price collusion from the standpoint of the concept of technological modes

The periodization of the development of price collusions from the standpoint of the concept of technological modes was carried out, it was concluded that at each of the identified stages, the basic industries of the current mode were cartelized, and cases of market monopolization arose in them. Based on the theoretical essence of the process of emergence and detection of price collusion under study, a review of the conditions and factors identified by the authors that influence the potential existence of a cartel in the market was carried out.

Structural Characteristics and Conduct of Sweet Potato Market in Rachuonyo Region, Kenya: Perception of Sweet Potato Farmers and Traders

Myriad studies have been conducted on commodity markets in different parts of the world. However, such studies have yielded inconsistent results on various facets of market structure and market conduct, implying that each market may have its distinctive characteristics which impact on its performance. In Sub-Saharan Africa, the growth of sweet potato industry is hindered by lack of information on sweet potato market structural characteristics. Kenya’s sweet potato industry is facing a similar challenge. This scenario calls for a baseline survey on the sweet potato market structural characteristics and conduct as a basis for subsequent robust studies on the possible nexus between the market structure, conduct and performance of the industry. The study adopted a descriptive survey design based on interpretivism research paradigm. A sample size of 384 farmers, 166 retailers and 55 wholesalers were taken. Pretested questionnaires were used to gather perception of the respondents on various parameters based on a five-point Likert scale. The views were then summarized in terms of means scores. It was established that the sweet potato market was imperfect since there were notable elements of potato differentiation and barriers to entry into the market. Such barriers included competition from other traders and uncertainties in the demand for sweet potato. The situation was exacerbated by lack of suitable storage facilities given the perishable nature of the commodity. High market concentration was noted at the wholesale level, a likely indicator of price collusion and exploitation by the few large sellers that dominated the market. In this regard, there is need to enhance value addition activities that can enable the market players especially the farmers to be more competitive within the supply chain. Efforts should also be made to eliminate the identified market barriers

A consumer surplus, welfare and profit enhancing strategy for improving urban public transport networks

We show that a novel pricing system can help resolve a series of perennial problems evident in the deregulated British urban public transport market that have impeded urban growth, access equality and environmental ambitions. A two-stage pricing system, with operators setting their multi-operator service ticket prices collusively in one stage and their single-operator ticket prices independently in the other, offers potential consumer surplus, profit and welfare gains over, what we characterise as, the free-market ‘Status Quo’. The proposed win–win pricing system can also support a larger number of operators and services with potential additional welfare gains. We also compare the proposed system against a multi-operator ticketing card (MTC) scheme, permitted in the UK under the Block Exemption. The Block Exemption allows collusive pricing on a limited basis but is due to expire and is under statutory review, making this is a timely contribution. We show, whilst the MTC offers higher welfare when all regimes provide the same number of services, the proposed system can support a larger number of operators in the presence of fixed costs, which can reverse the welfare ranking in its favour. A calibration exercise indicates the market may be operating in the region where the proposed system can dominate the ‘Status Quo’ in profit, consumer surplus and welfare terms and support a larger network than the ‘Status Quo’ or MTC with further welfare gains. The resulting higher public transport patronage may also offer further indirect benefits via reduced pollution, congestion and accidents. Improved transport efficiency may have urban density advantages, especially in Britain’s second-tier cities which do not tend to benefit from extensive public transit rail and underground networks, with associated agglomeration effects contributing to the current levelling-up priority. Given the salience amongst developed countries of the private aspect of urban public transport in Britain, along with an unresolved private vs public debate, this issue is of potential interest to urban planners and policymakers beyond the UK.

Building Trust: A Dynamic Game of Collusive Price Leadership

Building Trust: A Dynamic Game of Collusive Price Leadership

Oligopoly and Collusion in the Colombian Electricity Market

The Wholesale Electricity Market –WEM– in Colombia was created with Laws 142 and 143 of 1994 with the aim of promoting and preserving competition among agents and guaranteeing an efficient energy spot price. However, in practice the market works as an oligopoly in competition; evidence indicates there is market concentration, without reaching abuse of dominant position or price collusion, at least not explicitly. This paper develops a game model with incomplete information, in which there is at least a Perfect Bayesian Equilibrium with implicit collusion among agents. That is, it is highly likely that, under certain conditions, some generators tacitly follow the price strategies of agents with greater installed generation capacity (pivotal) and hence propose similar bid prices. The empirical analysis shows that scenarios of radical and similar increases in bid prices, for different generators, are a pattern present in the WEM.

Collusive Pricing with Consumer Search

Collusive Pricing with Consumer Search

Effects of Strategic Choices for the Postmerger Manufacturer on Supply Chain Members

To investigate the impact of different strategies adopted by the merged firm on supply chain members, we consider a two‐tier supply chain involving two suppliers and multiple manufacturers. Different from most studies, manufacturers, downstream in the supply chain, are asymmetric and produce differentiated products. Due to the differences between products, the postmerger manufacturer can choose focus strategy to generate synergy effect or differentiation strategy to implement price collusion. We give equilibrium results for the supply chain under different strategies. Theoretical analysis shows that for supplier, no matter which strategy is chosen, the price sensitivity for suppliers will increase. Surprisingly, the merger has the opposite effect on the profits of two suppliers under differentiation strategy. Regarding the strategic options after the merger, our research indicates that with the increased substitutability between products, shifting from differentiation strategy to focus strategy should be taken by the postmerger manufacturer. In addition, when focus strategy is chosen and the synergy effect is weak, or when differentiation strategy is chosen and the substitution between products is small, the merger may be beneficial to nonparticipating manufacturers.

Collusion in quality‐segmented markets

AbstractThis paper analyzes price collusion in a repeated game with two submarkets: a standard and a premium quality segment. Within this setting, we study four types of price‐fixing agreement: (i) a segment‐wide cartel in the premium submarket only, (ii) a segment‐wide cartel in the standard submarket only, (iii) two segment‐wide cartels, and (iv) an industry‐wide cartel. We present a complete characterization of the collusive pricing equilibrium and examine the corresponding effect on market shares and welfare. Partial cartels operating in a sufficiently large segment lose market share and the industry‐wide cartel prefers to maintain market shares at precollusive levels. The impact on consumer and social welfare critically depends on the cost of producing quality. Moreover, given that there is a cartel, more collusion can be beneficial for society as a whole.

Symmetric and asymmetric adjustment of bank deposit interest rates: empirical evidence from Kenya

PurposeThis paper examines the sluggish adjustment of deposit interest rate categories with response to policy rate changes in a developing economy.Design/methodology/approachSymmetric and asymmetric error correction models (ECMs) are employed to test the pass-through effect and adjustment speed of deposit rates when above or below their equilibrium levels.FindingsThe findings reveal an incomplete pass-through effect in both the short run and long run while mixed results of symmetric and asymmetric adjustment speed across the different deposit rate categories are observed. Collusive pricing arrangement behavior is supported by deposit rate categories that adjust more rigidly upwards than downwards, while negative customer reaction behavior is supported by deposit rate categories that adjust more rigidly downwards than upwards.Practical implicationsEven though the findings indicate an aspect of increased responsiveness over the period, the sluggish adjustment of deposit rates imply that monetary policy is still ineffective and not uniform across the different deposit rate categories.Originality/valueTo the best of the authors' knowledge, this is the first study to empirically examine both symmetric and asymmetric adjustment behavior of deposit interest rate categories in Kenya. The findings are key to policy makers as they provide insights on how long it takes to adjust different deposit rate categories to monetary policy decisions. In addition, the behavior of deposit rates partly explains why interest rates capping was imposed in Kenya in 2016.

Price collusion, rationalisation and Admiralty oversight in British shipbuilding: The case of the Warship Group, 1926–1945

Between 1925 and 1935, several private firms capable of constructing warships, or parts thereof, collapsed, merged or were partly or fully ‘sterilised’ against any return to shipbuilding during a period of ‘rationalisation’ to reduce perceived overcapacity relative to demand in British shipbuilding. Thereafter, rearmament had the opposite effect upon industry; lack of capacity in some key areas created almost unprecedented demand, and led eventually to uncontrolled price collusion and profits, particularly on warship contracts. An investigation into profiteering was undertaken in 1943, which embarrassed the remaining builders and their principal contractors. This article establishes that the Admiralty had allowed a form of price-fixing at taxpayers’ expense to proliferate for some time, a largely unknown episode that spanned the years of disarmament and rearmament. Further, it explains how and why collusion occurred when it did, and discusses the catalytic role of shipyard rationalisation. Finally, we conclude by suggesting reasons for such loose Admiralty control of warship costs during rearmament.

The Anti-monopoly Principles of Resale Price Maintenance under Platform Economy

Digital economy requires the establishment of an effective antitrust enforcement system to guarantee the high-quality enforcement of Anti-monopoly Law. In recent years, the resale price maintenance （RPM） has been a focal point in the judicial practice of antitrust enforcement in China. However, the proper application of anti-monopoly principles towards resale price maintenance （RPM） has been in great controversy. Based on analyzing the development of per se rule and rule of reason, we investigate their core and point out that per se rule and rule of reason are complementary, and rule of reason is a system that embodies the economic fact, the economic theory, and the procedure guarantee. In platform economy, resale price maintenance （RPM） has three new features, which are conducting resale price maintenance （RPM） by algorithm, mainly conducted on online platforms with the characteristic of two-sided market, influencing multiple subjects and markets in terms of its economic impact. The efficiency effects of resale price maintenance （RPM） are mainly reflected by overcoming the problem of “free riding” in distribution, achieving network effects, proving high quality, stimulating creativity, etc. The anti-competitive effects of resale price maintenance （RPM） are mainly reflected by facilitating price collusion, market foreclosure, and exploitative pricing. Therefore, it is appropriate to apply rule of reason in specific case review. In platform economy, the application of rule of reason in resale price maintenance （RPM） cases should focus on the analysis of its impact on non-price factors, strengthen algorithm investigation, and fully consider the unique features of platform economy, such as network effects, multi-homing, etc.Despite the fact that the anti-monopoly authority conducts a prudent enforcement and some economic analysis, according to the Antimonopoly Law of China, the antimonopoly rule for resale price maintenance （RPM） cases is per se rule. The judicial practice of China anti-monopoly enforcement demonstrates that multiple reasons can affect enforcement quality and increase the risk of enforcement fault, and that is the simple application of per se rule, the follow-up enforcement of local anti-monopoly authorities, the different principles applied between admiration and judicial authorities, and the inconsistency of punishment standards. It is necessary to stick to rule of reason as the basic principle for vertical restraints and construct the system by strengthening the core of rule of reason to guarantee the high-quality enforcement of Anti-monopoly Law.

The Nature of Equilibria Under Noncollusive Product Design and Collusive Pricing

The basic framework is Hotelling’s model of product choice with quadratic transportation cost. Duopolists choose locations in the initial period and compete in prices in subsequent infinite periods. The firms share profits on the profit possibility frontier. It is shown that under very general conditions, both the firms locating at the center is an equilibrium. It is not necessarily unique and multiple symmetric equilibria can exist. Thus, the products are not necessarily minimally differentiated. How the profits are shared when the firms are located together off the center has a critical bearing on the nature of equilibria. If the firms share profits equally at those locations, then all the equilibria are symmetric. Otherwise, asymmetric equilibria can appear. The equilibria can be classified into three types: a unique equilibrium at the center of the market, multiple symmetric equilibria and multiple asymmetric agglomerated equilibria. The second case entails nonminimal product differentiation. Sufficient conditions for each of these equilibria are given. Necessary conditions for multiple symmetric equilibria off the center are also obtained.

Restrain Price Collusion in Trade-Based Supply Chain Finance

Collusion can increase the transaction value among supply chain members to obtain higher loans from supply chain finance (SCF) service provider, which will bring some serious risks for SCF. However, it is difficult to be identified and restrain the SCF service provider due to its stability and hiddenness. Different SCF transaction structures will affect the profits of supply chain members from collusion. This paper develops various game models for collusion and not collusion for different SCF transaction structures and investigates the impact of SCF transaction structures on the boundary conditions of collusion. Through comparative analysis, the findings of models are as follows: (1) in a two-echelon supply chain, the supplier and retailer are more likely to conduct collusion under the sequential game than under the simultaneous game; (2) collusion in the two-echelon supply chain can obtain higher loans than that in the three-echelon supply chain, so it has more serious hidden danger; (3) in the two-echelon supply chain, collusion is easier to form than in the three-echelon SCF supply chain that has spontaneous endogenous constraints. We also develop two types of mechanisms to restrain collusion behavior from profit sharing and incomplete information perspectives. Finally, we summarize the theoretical implications and analyze the management implications through a case study.

Dual-channel competition: the role of quality improvement and price-matching

Quality improvement and price-matching are two commonly used competing strategies by the retailers. However, it is still unclear how the retailers should deliberate over the two strategies when selling in both online and offline markets. In this paper, we consider two dual-channel retailers selling a substitutable product to consumers in both online and offline markets. Especially, the retailers compete in the online market, and their offline markets are exclusive to themselves. We establish a game-theoretical model to investigate the trade-off between quality improvement and price-matching in competition, and the impact on retailers' profits and consumer surplus in the dual-channel market structure. The analysis shows that, first, a retailer should choose to improve its quality to avoid price competition when the online market is small; second, when retailers engage in price competition, the retailer with larger offline market is more willing to adopt price-matching, while the retailer with a small share of offline market can be hurt; third, quality improvement can always increase the consumer surplus, while price-matching always hurts consumer surplus due to price collusion.