Episode Details

Picture two gas stations across the street from each other. One increases its price. The other one follows. And it happens over and over again. The pattern looks funny. But does it prove price-fixing?

In episode 2 of How Cartels Really Work, we explain why it is a lot harder to prove a cartel than it is to describe one.

We follow six observations that make the hypothetical case incrementally more compelling: simultaneous price increases, repeated matching, prices rising independently of costs, communications between competitors, increasing specificity of discussions, and finally evidence of an agreement. The problem is that competitors can behave in similar ways for reasons unrelated to an illegal agreement. Companies spy on one another. They react to the same market conditions.

And in concentrated markets, the best course for a firm may depend on what it expects its rivals to do. So the important question is not whether prices moved in the same direction. It is the cause they moved together. This episode discusses the difference between parallel conduct and agreement, direct and circumstantial evidence, and why economists looking for suspected cartels often start with pricing patterns, not end with them.

Read the full article and graphic analysis: https://blog.econworks.com/p/cartels-episode-2-why-price-fixing?r=562wri

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