Empirical Studies of Collusion
Friday, Jan. 4, 2019 2:30 PM - 4:30 PM
- Chair: Katja Seim, University of Pennsylvania
Price Matching Guarantees and Collusion: Theory and Evidence from Germany
AbstractOn 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
AbstractWe 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
AbstractWe 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.
- L1 - Market Structure, Firm Strategy, and Market Performance
- L4 - Antitrust Issues and Policies