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Identifying the Degree of Collusion Under Proportional Reduction

Oleksandr Shcherbakov and Naoki Wakamori

Staff Working Papers from Bank of Canada

Abstract: Proportional reduction is a common cartel practice in which cartel members reduce their output proportionately. We develop a method to quantify this reduction relative to a benchmark market equilibrium scenario and relate the reduction to the traditional conduct parameter. Our measure is continuous, allowing us to have an intuitive interpretation as the “degree of collusion” and nesting the earlier models in the existing literature. Furthermore, our methodology addresses Corts’ (1999) critique by estimating time-varying degree of collusion from a short panel of firm-level observations, exploiting firms’ ex post heterogeneity. We illustrate the method using the Joint Executive Committee railroad cartel data.

Keywords: Econometric and statistical methods; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: D22 L41 C36 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-ind
Date: 2017
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