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Partial Cartels and Mergers with Heterogeneous Firms: Experimental Evidence

Author

Listed:
  • Gomez-Martinez, Francisco
Abstract
A usual assumption in the theory of collusion is that cartels are all-inclusive. In contrast, most real-world collusive agreements do not include all firms that are active in the relevant industry. This paper studies both theoretically and experimentally the formation and behavior of partial cartels. The theoretical model is a variation of Bos and Harrington’s (2010) model where firms are heterogeneous in terms of production capacities and where individual cartel participation is endogenized. The experimental study has two main objectives. The first goal is examine whether partial cartels emerge in the lab at all, and if so, which firms are part of it. The second aim of the experiment is to study the coordinated effects of a merger when partial cartels are likely to operate. The experimental results can be summarized as follows. We find that cartels are typically not all-inclusive and that various types of partial cartels emerge. We observe that market prices decrease by 20% on average after a merger. Our findings suggest that merger analysis that is based on the assumption that only full cartels forms produces misleading results. Our analysis also illustrates how merger simulations in the lab can be seen as a useful tool for competition authorities to back up merger decisions.

Suggested Citation

  • Gomez-Martinez, Francisco, 2016. "Partial Cartels and Mergers with Heterogeneous Firms: Experimental Evidence," MPRA Paper 81132, University Library of Munich, Germany, revised 01 Jul 2017.
    • Handle: RePEc:pra:mprapa:81132
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    References listed on IDEAS

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    Cited by:

    1. Grüb, Jens, 2019. "Mergers and partial tacit collusion," Hohenheim Discussion Papers in Business, Economics and Social Sciences 15-2019, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    2. Ayse Gül Mermer & Sander Onderstal & Joep Sonnemans, "undated". "Can Communication Mitigate Strategic Delays in Investment Timing?," Tinbergen Institute Discussion Papers 23-033/I, Tinbergen Institute.
    3. Georg Clemens & Holger A. Rau, 2022. "Either with us or against us: experimental evidence on partial cartels," Theory and Decision, Springer, vol. 93(2), pages 237-257, September.
    4. Garcia Pires, Armando J. & Skjeret, Frode, 2023. "Screening for partial collusion in retail electricity markets," Energy Economics, Elsevier, vol. 117(C).
    5. Odenkirchen, Johannes, 2017. "Pricing Behavior of Cartel Outsiders in Incomplete Cartels," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168309, Verein für Socialpolitik / German Economic Association.
    6. Bovin, Andreas & Bos, Iwan, 2023. "Market Shares as Collusive Marker: Evidence from the European Truck Industry," Research Memorandum 011, Maastricht University, Graduate School of Business and Economics (GSBE).

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    More about this item

    Keywords

    Bertrand oligopoly; Cartels; Mergers; Experiments;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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