Episode Details

How can a cartel survive for years when its customers are sophisticated firms with large buying power? Episode 8 of How Cartels Really Work looks at two big cases in history: automobile parts cartels and the international vitamins cartel. Both were suppliers selling to large businesses with professional purchasing departments. But some of these illegal deals lasted for a decade or more. Why didn't their customers see the cartels? Let's start with Costco's buying practices. Costco’s buyers look at the underlying costs when suppliers want to raise their prices and push back on any increases that don’t seem justified. For sophisticated purchasing managers, it may be difficult to tell if their suppliers are colluding. A firm might employ economists to analyze the prices, costs, and bidding strategies of suppliers. However, it can be costly to perform detailed economic analysis on thousands of products. Artificial intelligence could change that equation. AI might enable buyers to review more transactions, detect suspect pricing patterns, and identify alternative suppliers at a much lower cost. And here’s a tantalizing possibility: Buyers may be able to make a cartel less profitable without proving it exists.

If AI enables customers to discover better alternatives, then that could increase competitive pressure on suppliers and make some cartels harder to sustain. Could AI change the economics of collusion by making buyers better at buying?

Read the full article and graphic analysis: https://blog.econworks.com/p/cartels-episode-8-the-biggest-cartels?r=562wri

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