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Detecting illegal activities: the case of cartels

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Abstract

This paper considers enhancements of a comparatively new method to detect cartels, the System of Cartel Markers (SCM), introduced by Blanckenburg and Geist (Int Adv Econ Res 15(4):421–436, 2009). The aim of SCM is to find illegal collusion on legal markets with observable market data. It uses expected behavior patterns such as low level of capacity utilization, slackness of price adjustments to exogenous shocks, excess rates of return, nearly constant capacities, less price changes and lower variance of capacity growth rate. However, the testing of cost efficiency is lacking so far. Following Leibenstein’s (Am Econ Rev 56:392–415, 1966) X-inefficiency theory, we assume that cartel members face lower competition and hence, tend to be less cost efficient. Therefore, we enhance SCM and use cost efficiency as a further marker in order to detect cartels. We apply SCM to the German cement cartel and find empirical support for some markers. The proposed methodology may be used for antitrust screening and regulatory purposes.

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Notes

  1. For a good overview of the theoretical and empirical literature on existing screens for collusion see Harrington (2005).

  2. www.euklems.net.

  3. For the whole spectrum of cooperation see e.g., Fear (2008). If firms agree on the price but not on capacities (semicollusion), Fershtman and Gandal (1994) show that the incentives of the cartel members do differ and hence, an adjustment of the markers is necessary.

  4. This hypothesis is also supported by Osborne and Pitchik (1987).

  5. The expected positive correlation between utilization rate of capacities and price changes holds for the case of negative demand shocks as well.

  6. For a discussion of these studies, see Bresnahan and Reiss (1991).

  7. See Blanckenburg (2007).

  8. See Munsberg (1994).

  9. See Enders (2004, pp. 181–185).

  10. For an overview see Church and Ware (2000, Chap. 12).

  11. Relevant data can be obtained from the November edition of the German Bundesbank’s monthly reports.

  12. http://www.diw.de/en.

  13. Statistical Classification of Economic Activities in the European Community, Rev. 2 (NACE), See Eurostat, http://ec.europa.eu/eurostat/ramon.

  14. These industries were the focus of previous research and have been identified as competitive markets. See Geist (2010).

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Acknowledgments

We are grateful to an anonymous referee, Heinz Grossekettler, Andreas Hadamitzky and Selina Reinicke for helpful comments and suggestions. Our special thanks go to Rabea, Leonore & Kiran von Blanckenburg and Nathalie Markwart-Geist & Maxim Geist.

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Authors and Affiliations

  1. German Institute for Economic Research (DIW Berlin), Berlin, Germany

    Korbinian von Blanckenburg

  2. Institute of Public Economics, University of Münster, Münster, Germany

    Alexander Geist

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  1. Korbinian von Blanckenburg
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  2. Alexander Geist
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Correspondence to Korbinian von Blanckenburg.

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von Blanckenburg, K., Geist, A. Detecting illegal activities: the case of cartels. Eur J Law Econ 32, 15–33 (2011). https://doi.org/10.1007/s10657-010-9167-x

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