Economics of collusion

Problem of proving conspiracy: most of the time, evidence is hidden, so P must often rely on circumstantial evidence. The economics of collusion helps construct a narrative that suggests conspiracy.

• Cartel problems and their solutions (see Andreas and JTC Petroleum):
  • Reach consensus on price / quantity / quality / markets: meetings and discussions
  • Deter cheating
    • Detection: share information
    • Punishment: violence (OUS) or making business more difficult for competitors (U.S.)
  • Prevent new competition from non-participants and entrants

Factors that facilitate and frustrate cartel formation:

Facilitating	Frustrating
Few firms	Many firms
Product homogeneity Simple products	Product heterogeneity Complex, changing products
Excess capacity (multiple firms) Inelastic market demand	Excess capacity (individual firm)
	Sale of complementary products
Open transactions Predictable demand	Private transactions Unpredictable demand
Small transactions Small buyers	"Lumpy" sales Large buyers