Rent sharing to control non-cartel supply in the German cement market

Joseph E. Harrington, Kai Hüschelrath and Ulrich Laitenberger
Authors registered in the RePEc Author Service: Kai Hueschelrath

No 16-025, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: A challenge for many cartels is avoiding a destabilizing increase in non-cartel supply in response to having raised price. In the case of the German cement cartel that operated over 1991-2002, the primary source of non-cartel supply was imports from Eastern European cement manufacturers. Industry sources have claimed that the cartel sought to control imports by sharing rents with intermediaries in order to discourage them from sourcing foreign supply. Specifically, cartel members would allow an intermediary to issue the invoice for a transaction and charge a fee even though the output went directly from the cartel member's plant to the customer. We investigate this claim by first developing a theory of collusive pricing that takes account of the option of bribing intermediaries. The theory predicts that the cement cartel members are more likely to share rents with an intermediary when the nearest Eastern European plant is closer and there is more Eastern European capacity outside of the control of the cartel. Estimating a logit model that predicts when a cartel member sells through an intermediary, the empirical analysis supports both predictions.

Keywords: collusion; cartel; non-cartel supply; cement; distribution channels; intermediary (search for similar items in EconPapers)
JEL-codes: K21 L41 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com, nep-eur and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Rent sharing to control noncartel supply in the German cement market (2018)
Working Paper: Rent sharing to control noncartel supply in the German cement market (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:16025

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