Cartel sustainability in retail markets: Evidence from a health service sector |
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| Institution: | 1. Faculty of Economics and Business Administration, The University of Kitakyushu, 4-2-1 Kitagata, Kokuraminami-ku, Kitakyushu, 802-8577, Japan\n;2. Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan;1. Department of Computer Science and Mathematics, Lebanese American University, Beirut, Lebanon;2. Sorbonne University, UPMC Univ Paris 06 CNRS-IRD-MNHN, LOCEAN Laboratory 4 place Jussieu,75005 Paris, France;3. Inria Paris-Rocquencourt, Domaine de Voluceau, 78150, Le Chesnay, France;4. National Centre for Marine Sciences-CNRSL, P.O.Box 189, Jounieh, Lebanon;5. Oceanography Centre, University of Cyprus, P.O. Box 20537 1678, Nicosia, Cyprus;6. Istituto Nazionale di Oceanografia e di Geofisica Sperimentale (OGS), Borgo Grotta Gigante, 42/c 34010 Sgonico (Trieste), Italy;1. Department of Economics, Vrije Universiteit Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands;2. Department of Business Sciences, Sapientia University, Piaţa Libertăţii nr. 1, Miercurea Ciuc 530104, Romania;3. Kelley School of Business, Indiana University, 1309 E. 10th St, Bloomington, IN 47405, USA;1. University of Liege, CORE and Paris School of Economics;2. University Paris East (ERUDITE), Paris School of Economics and Institut universitaire de France |
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| Abstract: | This paper studies the role of cost asymmetries and product differentiation on cartel sustainability by drawing data from a failed retail cartel. Unlike the extensive theoretical literature, little empirical evidence exists on these relationships. First, we analyze cartel compliance and find that players are more likely to comply when cost is symmetric and own cost is high. Next, based on a structural model and counterfactual experiments, we show that a cartel price that satisfies all cartel members does not exist. This result indicates an inherent difficulty of sustaining collusion in retail markets with heterogeneous players. We also show that firm heterogeneities, especially product differentiation rather than cost asymmetries, hinder collusion more. Finally, we derive the level of patience (or the discount factor) required for cartel sustainability when firms split profits based on the Shapley value. |
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