Breaking Up is Hard to Do: Determinants of Cartel Duration

51 Pages Posted: 16 Sep 2010

See all articles by Margaret C. Levenstein

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

Valerie Y. Suslow

Johns Hopkins University - Carey Business School

Date Written: September 2010

Abstract

We estimate the impact of cartel organizational features, as well as macroeconomic fluctuations and industry structure, on cartel duration using a dataset of contemporary international cartels. We estimate a proportional hazards model with competing risks, distinguishing factors which increase the risk of “death by antitrust” from those that affect “natural death,” including defection, dissension or entry. Our analysis indicates that the probability of cartel death from any cause increased significantly after 1995 when competition authorities expanded enforcement efforts toward international cartels. We find that fluctuations in firm-specific discount rates have a significant effect on cartel duration, whereas market interest rates do not. Cartels with a compensation scheme – a plan for how the cartel will handle variations in demand – are significantly less likely to break up. In contrast, retaliatory punishments in response to perceived cheating significantly increase the likelihood of natural death. Cartels that have to punish are not stable cartels.

Keywords: international cartels, price fixing, collusion, organization

Suggested Citation

Levenstein, Margaret C. and Suslow, Valerie Y., Breaking Up is Hard to Do: Determinants of Cartel Duration (September 2010). Ross School of Business Paper No. 1150. Available at SSRN: https://ssrn.com/abstract=1676968 or http://dx.doi.org/10.2139/ssrn.1676968

Margaret C. Levenstein (Contact Author)

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)

Valerie Y. Suslow

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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