Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance

Joseph E. Harrington, Jr. and Juan-Pablo Montero

No 446, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: This study investigates when a cartel that uses a sales quota allocation scheme monitors more frequently than it enforces; for example, monitoring of sales is done on a weekly basis but firms are only required to comply with sales quotas on a quarterly basis. In a simple three-period quantity game with iid cost and demand shocks, we show that the volatility of a cartel member's sales follows a U-shape within the compliance horizon. In comparison, sales volatility is constant over time under competition. This result offers a simple empirical test for distinguishing collusion from competition using sales data.

Date: 2013
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Chapter: Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance (2014)
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