Episode Details

How can a cartel survive for years when its customers are sophisticated firms with substantial buying power? In episode 8 of How Cartels Really Work, we examine two large cases in history, the automobile parts cartels and the international vitamins cartel. Both involved suppliers selling to large businesses with professional purchasing departments. But some of these illegal agreements ran for a decade or more. Why didn’t their customers see the cartels? We begin with Costco’s buying practices. If suppliers want to raise their prices, Costco’s buyers examine the underlying costs and challenge any increases that don’t appear warranted. Sophisticated purchasing managers may have trouble figuring out if their suppliers are colluding. A company might hire economists to analyze the prices, costs, and bidding strategies of suppliers. However, it can be expensive to do detailed economic analysis on thousands of products. Artificial intelligence could alter that equation. AI may allow buyers to look at more transactions, identify suspect pricing patterns, and uncover alternative suppliers at a much lower cost. And here’s an intriguing possibility: Buyers might only have to show that a cartel is less profitable.

AI could increase competitive pressure on suppliers and make some cartels harder to sustain if it helps customers identify better alternatives. AI could alter the economics of collusion by making buyers better at buying, right?

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

Explore more visual economics content: https://econworks.com

YouTube: https://www.youtube.com/@EconWorks-d3e

Substack: https://blog.econworks.com