Collusion and seasonality of market price - A case of fixed market shares

Abstract

The paper develops a simple supergame model of collusion that focuses on the role of fixed (exogenous to game played) system of quantity market shares. Conclusions implied by the model could be used to motivate data-saving markers of collusion based on market price behavior. Following conclusions of the theoretical model we propose marker of collusion based on detecting changes in seasonal parameters of prices in periods of possible collusion. An empirical application of method has been done on well known data of Lysine cartel case.

Polish cement industry cartel - preliminary examination of collusion existence

“…In our research we want to use specific patterns, which concern: -the relation between players' prices and market demand changes (Green and Porter, 1984;Rotemberg and Saloner, 1986;Haltiwanger and Harrington, 1991;Bejger, 2010); -market shares volatility (Albeak et al, 1997;Athey, Bagwell, and Sanchirico, 2004;Athey and Bagwell, 2004;Bejger, 2010). According to above mentioned researches in collusion (cartel) phase player's price and market supply are negatively correlated; it becomes possible that price leads a demand cycle or is insensible (sticky) to seasonal changes of demand.…”

“…In a case of market shares theoretical basis is more unclear. Some conclusions are contained in Albeak et al (1997), Harrington (2006); analysis of particular case have been done in Bejger (2010). Generally speaking, in a cartel phase market shares should exhibit very small volatility and are more stable under collusion phase.…”

Detekcja równowagi zmowy w branży z wykorzystaniem analizy falkowej

“…The discovered moments of change are closely tied to vital facts from the cartel history, therefore we can assume that they indicate the change in the players' price behaviour. If we accept the proposed game theory model (Bejger, 2010) as the theoretical base for that behaviour, changes in the variance correspond to phases of the price war and collusion. In confrontation with the to-date analyses of the workings of the cartel, the present empirical study leads to the following differences in the history evaluation:  price war phase is delayed by around 12 months,  first phase of collusion is not clearly distinguished.…”

“…In the paper Bejger (2010), on the basis of well-known Lysine 1 cartel (1990)(1991)(1992)(1993)(1994)(1995)(1996) period) a theoretical model of strategic behaviour of industry players was constructed as a standard supergame model with a Cournot type stage game with additional assumption of exogenous and time-constant cartel quota (market shares). For business branches bound by specific parameters, e.g.…”

Cartel in the Indian Cement Industry: An Attempt to Identify it

“…The exception, however, is an analysis of seasonal volatility related to a variability analysis, e.g. in Bejger (2010). A price variability analysis, in the other hand, has a strong theoretical motivation that makes it possible to connect disturbances in the variance of a price process and the possibility of occurrence of collusive equilibrium in an industry.…”