The Effect of Competition on Trade Patterns: Evidence from the Collapse of International Cartels
Margaret C. Levenstein
University of Michigan at Ann Arbor - Survey Research Center; The Stephen M. Ross School of Business at the University of Michigan, Business Economics and Public Policy
University of Michigan, Stephen M. Ross School of Business
Valerie Y. Suslow
Johns Hopkins Carey Business School
January 1, 2015
International Journal of Industrial Organization Volume 39, March 2015, Pages 56–70
Ross School of Business Paper No. 1147
How do changes in competitive intensity affect trade patterns? Some cartels may find it advantageous to eliminate cross-hauling and divide markets geographically. We exploit a quasi-natural experiment associated with increased antitrust enforcement to determine if market division strategies were used in seven recently-prosecuted international cartels. Since antitrust activity is unlikely to affect spatial patterns of demand and supply (other than through its effect on the competitive environment), enforcement-induced changes are ideally suited to study the effect of competition on trade patterns. Analyzing the cartels individually and as a group, we find no significant change in spatial patterns of trade following cartel breakup; in particular, there is no significant change in the effect of distance on trade. These results suggest that cross-hauling is not uncommon under collusion and hence that the existence of cross-hauling by itself does not provide evidence of effective competition.
Keywords: Multimarket collusion, gravity, cross-hauling, cartels, market allocation, antitrust policy
JEL Classification: F12, F23, D43, D21
Date posted: June 23, 2010 ; Last revised: June 5, 2015
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