Identifying Participants in a Price-fixing Conspiracy: Output & Market Share Tests Reexamined – Reply

Identifying Participants in a Price-fixing Conspiracy: Output & Market Share Tests Reexamined –... 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 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Identifying Participants in a Price-fixing Conspiracy: Output & Market Share Tests Reexamined – Reply

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007728122498
Publisher site
See Article on Publisher Site

Abstract

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

Journal

Review of Industrial OrganizationSpringer Journals

Published: Sep 29, 2004

References

  • Identifying Participants in a Price-Fixing Conspiracy: Output & Market Share Tests Reexamined
    Karaaslan, M.

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