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Fighting
Collusion: The Role of Regulation of Communication Between Firms
Embargo:
00.01, Friday 6 April 2001
Economists
have developed much expertise on cartels – what encourages their
formation and when they can be expected to break down. The standard
presumption is that collusive behavior (which is socially harmful and
therefore typically proscribed by law) can be detected by observing
prices, quantities and other market data, and indeed such evidence often
plays a role in anti-trust policy. This view is challenged by Kai-Uwe Kühn,
who proposes a new anti-trust policy. He critically reviews the standard
tools of anti-trust policy that rely on econometric evidence on prices
and quantities. The cases he discusses suggest that these econometric
tools suffer from serious identification problems that make them too
blunt to be useful in practical anti-trust policy.
But
Kühn goes beyond critique by providing a constructive proposal for
implementing an anti-trust policy based on communications
among firms rather than on market
data. He uses case studies and draws on recent experimental evidence
to determine which types of communication make it easier for firms to
coordinate on a collusive equilibrium and to sustain collusion in a
world with random shocks. The central problem he addresses is that
information exchange can help firms to coordinate on collusive
equilibria, but may also be efficiency enhancing along other dimensions.
Hence, if information exchange can be regulated, the type of information
exchange should be made illegal that is likely to ease coordination on a
collusive equilibrium but is unlikely to have major other efficiency
effects. Kai-Uwe Kühn concludes that, for instance, any private
discussion of future output prices or production plans among firms and
the information exchange about past prices and quantities should be
banned, whereas an exchange of aggregate industry data should be
contemplated.
The
panel generally welcomed the idea to take information exchange in
anti-trust policy seriously into account. Some panel members argued that
the suggestion to disregard econometric evidence on prices and
quantities in anti-trust cases completely is too strong, and argued for
adopting a policy that uses both econometric evidence and bans of
certain types of information exchange.
Please
describe this as a ‘journal published by Blackwell Publishers for
CEPR, CES and DELTA in association with the European Economic
Association’
Notes
for Editors:
Economic
Policy is published in Association with the European Economic
Association by the Centre for Economic Policy Research, the Center for
Economic Studies of the University of Munich and the Département et
Laboratoire d’Economie Théorique et Appliquée (DELTA), in
collaboration with the Maison des Sciences de l’Homme.
For
further information about this publication please contact Rita Gilbert,
Tel: (44 20) 7878 2917 / Mobile: 07941 196 806 or email: rgilbert@cepr.org.
The
Author:
Kai-Uwe
Kühn is
in the Department of Economics, University of Michigan.
Economic
Policy
Issue 32
‘Fighting
Collusion by Regulating Communication
Between Firms’
Kai-Uwe
Kühn
Available
from
Blackwell
Publishers Journals, PO Box 805, 108 Cowley Road,
Oxford OX4 1FH, UK.
Tel: (44 1865) 244083 Fax: (44 1865) 381 381
jnlinfo@blackwellpublishers.co.uk
www.blackwellpublishers.co.uk
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