The Effect of Competition on Trade Patterns: Evidence from the Collapse of International Cartels

Posted: 23 Jun 2010 Last revised: 5 Jun 2015

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

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business

Valerie Y. Suslow

Johns Hopkins University - Carey Business School

Date Written: January 1, 2015

Abstract

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

Suggested Citation

Levenstein, Margaret C. and Sivadasan, Jagadeesh and Suslow, Valerie Y., The Effect of Competition on Trade Patterns: Evidence from the Collapse of International Cartels (January 1, 2015). International Journal of Industrial Organization Volume 39, March 2015, Pages 56–70; Ross School of Business Paper No. 1147. Available at SSRN: https://ssrn.com/abstract=1628822 or http://dx.doi.org/10.2139/ssrn.1628822

Margaret C. Levenstein

University of Michigan at Ann Arbor - Survey Research Center ( email )

500 S. State Street
Ann Arbor, MI 48109
United States
734-615-9088 (Phone)
734-647-1186 (Fax)

HOME PAGE: http://www-personal.umich.edu/~maggiel

The Stephen M. Ross School of Business at the University of Michigan, Business Economics and Public Policy

Ann Arbor, MI 48109
United States
734-764-8336 (Phone)

Jagadeesh Sivadasan (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Valerie Y. Suslow

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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