
Contents
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I. Why do Competitors Cartelize? I. Why do Competitors Cartelize?
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A. Private Benefits of Cartels A. Private Benefits of Cartels
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(1) The pursuit of monopoly power (1) The pursuit of monopoly power
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(2) Tacit collusion or cartelization? (2) Tacit collusion or cartelization?
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(3) Crisis cartels (3) Crisis cartels
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(4) Other reasons why firms cartelize (4) Other reasons why firms cartelize
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(5) Forms of cartelization (5) Forms of cartelization
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B. Social Costs of Cartels B. Social Costs of Cartels
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(1) Economic theory and efficiency costs (1) Economic theory and efficiency costs
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(2) Empirical estimates of cartel overcharge (2) Empirical estimates of cartel overcharge
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(3) Cartel harm as fraud (3) Cartel harm as fraud
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II. How Do Cartels Work (And When are They Stable)? II. How Do Cartels Work (And When are They Stable)?
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A. Setting up a Cartel A. Setting up a Cartel
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(1) Will cartelization of the industry be profitable? (1) Will cartelization of the industry be profitable?
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(2) Establishing communication (2) Establishing communication
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(3) Reaching an agreement (3) Reaching an agreement
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B. When are Cartels Stable? B. When are Cartels Stable?
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(1) Detecting and deterring cheating (1) Detecting and deterring cheating
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(2) Dealing with external shocks (2) Dealing with external shocks
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(3) Competition law (antitrust) enforcement (3) Competition law (antitrust) enforcement
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(4) Algorithmic pricing and collusion (4) Algorithmic pricing and collusion
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(a) Reliance on pricing algorithms to facilitate explicit collusion (a) Reliance on pricing algorithms to facilitate explicit collusion
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(b) Algorithm-driven collusion involving algorithms developed by a third party (b) Algorithm-driven collusion involving algorithms developed by a third party
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(c) Reliance on algorithms to facilitate tacit collusion (algorithmic tacit collusion) (c) Reliance on algorithms to facilitate tacit collusion (algorithmic tacit collusion)
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Cite
Abstract
This chapter describes why and how firms try to form and run a cartel, and how these decisions relate to the economic theory of collusion. It first shows how firms form cartels to suppress or weaken the rivalry between them. They privately benefit from doing so but harm buyers (whether final consumers or other businesses) by artificially distorting the allocation of resources in the economy. The chapter then focuses on each of the elements needed for a cartel arrangement to be formed and to succeed, from the initial contact to the credible punishment mechanisms needed to prevent cheating. It looks at how cartels are set up and the challenges a cartel must overcome to maintain stability.
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