Posted: 23 Jun 2010 Last revised: 5 Jun 2015
Date Written: January 1, 2015
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: 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