DP9362 Anatomy of Cartel Contracts

Author(s): Ari Hyytinen, Frode Steen, Otto Toivanen
Publication Date: February 2013
Keyword(s): antitrust, cartels, competition policy, contracts, industry heterogeneity
JEL(s): K12, L40, L41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9362

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.