Rent Sharing to Control Non-Cartel Supply in the German Cement Market

37 Pages Posted: 12 Apr 2016

See all articles by Joseph E. Harrington

Joseph E. Harrington

Johns Hopkins University - Department of Economics

Kai Hüschelrath

ZEW – Leibniz Centre for European Economic Research

Ulrich Laitenberger

Tilburg University - Information Management; Télécom Paris; ZEW – Leibniz Centre for European Economic Research

Date Written: March 15, 2016

Abstract

A challenge for many cartels is avoiding a destabilizing increase in non-cartel supply in response to having raised price. In the case of the German cement cartel that operated over 1991-2002, the primary source of non-cartel supply was imports from Eastern European cement manufacturers. Industry sources have claimed that the cartel sought to control imports by sharing rents with intermediaries in order to discourage them from sourcing foreign supply. Specifically, cartel members would allow an intermediary to issue the invoice for a transaction and charge a fee even though the output went directly from the cartel member’s plant to the customer. We investigate this claim by first developing a theory of collusive pricing that takes account of the option of bribing intermediaries. The theory predicts that the cement cartel members are more likely to share rents with an intermediary when the nearest Eastern European plant is closer and there is more Eastern European capacity outside of the control of the cartel. Estimating a logit model that predicts when a cartel member sells through an intermediary, the empirical analysis supports both predictions.

Keywords: Collusion, cartel, non-cartel supply, cement, distribution channels, intermediary

JEL Classification: L41, K21

Suggested Citation

Harrington, Joseph E. and Hüschelrath, Kai and Laitenberger, Ulrich, Rent Sharing to Control Non-Cartel Supply in the German Cement Market (March 15, 2016). ZEW - Centre for European Economic Research Discussion Paper No. 16-025, Available at SSRN: https://ssrn.com/abstract=2762304 or http://dx.doi.org/10.2139/ssrn.2762304

Joseph E. Harrington

Johns Hopkins University - Department of Economics ( email )

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Kai Hüschelrath (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

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Germany

Ulrich Laitenberger

Tilburg University - Information Management ( email )

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Télécom Paris ( email )

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Palaiseau, 91120
France

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
Mannheim, 68034
Germany

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