Review of Industrial Organization 12: 291–294, 1997. 1997 Kluwer Academic Publishers. Printed in the Netherlands. Identifying Participants in a Price-ﬁxing Conspiracy: Output & Market Share Tests Reexamined – Reply ROGER D. BLAIR and RICHARD E. ROMANO University of Florida, School of Business Administration, P.O. Box 117140, Gainesville, FL 32611-7140, U.S.A. In Blair and Romano (1990), we argue that a simple output test can be employed to distinguish participants from nonparticipants in a price-ﬁxing conspiracy. Partici- pants will decrease their outputs to support a market price increase (and higher prof- its) as in the received theory of cartel behavior but modiﬁed to account for actions of nonparticipants. Any nonparticipant, facing increased price (or demand), will expand output. Hence, though both participants and nonparticipants charge higher prices and enjoy increased proﬁts, the participants induce the price increase with their output reduction, while nonparticipants mute the price increase with their uni- lateral choices to produce more output. We illustrate the result by taking a standard competitive (or Bertrand-pricing) equilibrium as the benchmark, and let a domi- nant subset of ﬁrms conspire to ﬁx price, who then act collectively as a textbook price-leading dominant ﬁrm. We also provide an appendix that veriﬁes the
Review of Industrial Organization – Springer Journals
Published: Sep 29, 2004
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