Collusion or competition? Evaluating the firm behaviors in the instant noodles market

In Kyung Kim () and Kyoo il Kim ()
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In Kyung Kim: Department of Economics, Sogang University, Seoul, Korea
Kyoo il Kim: Department of Economics, Michigan State University

No 2403, Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy)

Abstract: This study investigates the pricing behaviors of instant noodle manufacturers in South Korea during the 2010s. We find strong evidence against the suspicion by the Korea Fair Trade Commission (KFTC) that firms in this industry have colluded in price-fixing. Contrary to these suspicions, it appears they have been subjected to de facto price controls by the government; the observed markups are significantly lower than those calculated under a scenario of Nash–Bertrand competition, setting aside any collusion. Our counterfactual analysis suggests that profits would have been much higher (by 50 percent on average) than observed if the firms had engaged in the ‘follow-the-leader’ pricing strategy as claimed by the regulatory authority. These findings align with the ruling of the Supreme Court of Korea in 2015, which overturned the KFTC’s imposition of fines (approximately 120 million US dollars) on the four major instant noodle producers in 2012.

Keywords: Follow-the-leader pricing; Discrete choice demand; Collusion; Instant noodles (search for similar items in EconPapers)
JEL-codes: D12 D22 L40 L66 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2024
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
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