Analyzing Collusion Using Set-Identified Marginal Cost Functions

Seiichiro Mizuta () and Masato Nishiwaki ()
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Seiichiro Mizuta: Kobe University, Graduate School of Business Administration.
Masato Nishiwaki: University of Osaka, Graduate School of Economics.

No 25-03, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Wepropose an approach for analyzing markets in which firms are (suspected of) colluding. Our approach, which is based on set-identified marginal cost functions, enables us to screen for collusion and measure potential welfare losses caused by non-competitive behavior. The key idea is to exploit supernumerary (or excluded) instrumental variables that provide moment restrictions to falsify hypotheses about firm conduct and eliminate cost parameters implied by the falsified hypotheses. The resulting set of cost parameters that remain unfalsified under these restrictions functions as a screening tool for collusion. When competitive behavior is falsified, the corresponding parameter is excluded from the identified set. Additionally, the identified set can be used to measure potential welfare losses when competitive behavior is ruled out. This type of counterfactual welfare analysis is otherwise extremely difficult or nearly impossible to conduct.

Keywords: collusion; set identification; marginal cost functions; interval regression (search for similar items in EconPapers)
JEL-codes: C57 L40 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2025-05
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