DP14563 Collusive Market Allocations

Author(s): Elisabetta Iossa, Simon Loertscher, Leslie Marx, Patrick Rey
Publication Date: April 2020
Keyword(s): Coordinated effects, sustainability and initiation of collusion, synchronized vs staggered purchasing
JEL(s): D44, D82, L41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14563

Collusive schemes by suppliers often take the form of allocating customers or markets among cartel members. We analyze incentives for suppliers to initiate and sustain such a collusive schemes in a repeated procurement setting. We show that, contrary to some prevailing beliefs, staggered (versus synchronized) purchasing does not make collusion more difficult to sustain or initiate. Buyer defensive measures include synchronized rather than staggered purchasing, first-price rather than second-price auctions, more aggressive or secrete reserve prices, longer contract lengths, withholding information, and avoiding observable registration procedures. Inefficiency induced by defensive measures is an often unrecognized social cost of collusive conduct.