Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 25/2012: Anatomy of Cartel Contracts.

Ari Hyytinen (), Frode Steen () and Otto Toivanen ()
Additional contact information
Ari Hyytinen: University of Jyväskylã, Postal: Jyväskylã, Finland
Frode Steen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Otto Toivanen: K.U.Leuven, Postal: K.U.Leuven, Belgium

Abstract: We study cartel contracts using data on 18 contract clauses of 109 legal Finnish manufacturing cartels. One third of the clauses relate to raising profits; the others deal with instability through incentive compatibility,cartel organization, or external threats. Cartels use three main approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how cartels deal with instability. Simplifying, we find that large cartels agree on prices, cartels in homogenous goods industries allocate markets, and small cartels avoid competition through specialization.

Keywords: Cartels; contracts; antitrust; competition policy; industry heterogeneity.

JEL-codes: K12; L40; L41

56 pages, December 31, 2012

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