Working Paper: CEPR ID: DP9362
Authors: Ari Hyytinen; Frode Steen; Otto Toivanen
Abstract: We study cartel contracts using data on 18 contract clauses of 109 legal Finnish manufacturing cartels. One third of the clauses relate to raising profits; the others deal with instability through incentive compatibility, cartel organization, or external threats. Cartels use three main approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how cartels deal with instability. Simplifying, we find that large cartels agree on prices, cartels in homogenous goods industries allocate markets, and small cartels avoid competition through specialization.
Keywords: antitrust; cartels; competition policy; contracts; industry heterogeneity
JEL Codes: K12; L40; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Larger cartels (F12) | Agree on prices (P22) |
| Larger cartels (F12) | Use of instability clauses (G33) |
| Number of cartel members (L12) | Agree on prices (P22) |
| Number of cartel members (L12) | Use of non-competition/specialization clauses (L49) |
| Cartels in homogeneous goods industries (L12) | Use of market allocation clauses (D45) |
| Complexity of contracts (D86) | Cartel size (L12) |
| Complexity of contracts (D86) | Product differentiation (L15) |