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Empirical Studies of Collusion

Paper Session

Friday, Jan. 4, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, 304
Hosted By: Industrial Organization Society
  • Chair: Katja Seim, University of Pennsylvania

Market Entry, Fighting Brands, and Tacit Collusion

Marc Bourreau
,
Paris Tech
Yutec Sun
,
KU Leuven
Frank Verboven
,
KU Leuven

Abstract

We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbent firms. Using an empirical oligopoly model with differentiated products, we show that the incumbents' launch of the fighting brands can be rationalized only as a breakdown of tacit collusion. In the absence of entry, the incumbents successfully colluded on restricting their product variety to avoid cannibalization; the new entry of the low-end competition made such semi-collusion more difficult to sustain because of increased business stealing incentives. Consumers gained considerably from the added variety of the new entrant and the fighting brands, and to a lesser extent from the incumbents' price response to the entry.

Price Matching Guarantees and Collusion: Theory and Evidence from Germany

Luis Cabral
,
New York University
Niklas Duerr
,
Center of European Economic Research
Dominik Schober
,
University of Mannheim and CEER
Oliver Woll
,
Center of European Economic Research

Abstract

On May 27, 2015, the Shell network of gas stations in Germany introduced a Price Matching Guarantee (PMG) available to its card-carrying members. In the ensuing weeks, a series of attempts at tacit collusion took place, typically with stations increasing prices by 3 cents. In this paper, we argue that the juxtaposition of these two events is not a mere coincidence. We first present a theoretical model to argue that a PMG can be a collusion facilitating practice. We then test various predictions from our theoretical model. Our source of identification is geographical variation in the presence of Shell stations (the chain that enacted the PMG) as well as in the density of Shell card membership. Our empirical tests are consistent with the theoretical predictions, showing effects that are both statistically and economically significant.

Public Communication and Collusion in the Airline Industry

Gaurab Aryal
,
University of Virginia
Federico Ciliberto
,
University of Virginia
Benjamin Leyden
,
Cornell University

Abstract

We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. Using text analytics, we build a novel dataset on communication. Our estimates show that when all legacy airlines in a market discuss the concept of “capacity discipline,” they reduce offered seats by between 1.13% to 1.45%. We verify that this reduction materializes when airlines communicate concurrently, and that it cannot be explained by the possibility that airlines are simply following through with their announcements. Additional evidence from conditional-exogeneity tests and control function estimates confirms our interpretation.

Estimating Industry Conduct in Differentiated Products Markets: The Evolution of Pricing Behavior in the RTE Cereal Industry

Christian Michel
,
Pompeu Fabra University
Stefan Weiergraeber
,
Indiana University

Abstract

We estimate the evolution of competition in the ready-to-eat (RTE) cereal industry. To separately identify detailed patterns of industry conduct from unobserved marginal cost shocks, we construct novel instruments that interact data on rival firms’ promotional activities with measures of products’ relative isolation in the characteristics space. We find strong evidence for partial price coordination among cereal manufacturers in the beginning of our sample. Manufacturers’ price coordination intensifies following a horizontal merger in 1993, with median manufacturer margins increasing from 20.8 to 38.1 percent over those implied by multiproduct Bertrand-Nash pricing, but eventually fully breaks down to multiproduct Bertrand-Nash pricing.
Discussant(s)
Christopher Sullivan
,
University of Wisconsin-Madison
Matthew Backus
,
Columbia University
Nicolas de Roos
,
University of Sydney
Alon Eizenberg
,
Hebrew University of Jerusalem
JEL Classifications
  • L1 - Market Structure, Firm Strategy, and Market Performance
  • L4 - Antitrust Issues and Policies