Review of Industrial Organization (2005) 26:147–167 © Springer 2005
ROBERT H. PORTER
Department of Economics, Northwestern University, Evanston, Illinois 60208, U.S.A.
Abstract. Detection and deterrence of collusion are longstanding antitrust problems, made
difﬁcult because collusive arrangements are usually surreptitious. In this paper, I discuss
factors that facilitate or inhibit collusive schemes, as well as circumstances where detection
is possible. I describe how industrial organization economists diagnose collusion (both
explicit and tacit) among ﬁrms.
This year marks the 40th anniversary of the publication of George Stigler’s
“A Theory of Oligopoly” (Stigler, 1964). My purpose is to describe how to
determine when there is a collusive agreement among ﬁrms. Stigler’s paper
has been an inspiration and building block for the ensuing literature on
cartels and collusion. There is a sense in which much of the material I
cover here is derivative of ideas ﬁrst advanced by Stigler. I am happy to
acknowledge this debt, in the city where Stigler spent most of his career.
In any market, ﬁrms have an incentive to coordinate their decisions
and increase their collective proﬁts by restricting output and raising mar-
ket prices. A cartel might also limit new product introductions or qual-
ity improvements, although there is less of a consensus on the effects of
market power on these aspects of competition. Detection and deterrence of
collusion are a longstanding antitrust problem. Collusion includes circum-
stances where some ﬁrms act in unison to raise the prices that they charge
their customers, or to lower the price that they pay to acquire goods or ser-
vices, or to otherwise inhibit competition. These actions are usually surrep-
titious, either because they are illegal under antitrust laws or because they
are intended to be kept secret from the victims.
In this paper I discuss factors that facilitate or inhibit collusive schemes,
as well as circumstances where detection is possible. I will describe how
industrial organization economists diagnose collusion among ﬁrms. Collu-
sion in this instance may refer to either explicit or tacit cooperation. Under