Cartel detection and collusion screening: an empirical analysis of the London Metal Exchange

Law & Economics LAB, LUISS “Guido Carli” University, Rome, Italy, pp. 1-18

19 Pages Posted: 15 Apr 2014 Last revised: 25 Sep 2020

See all articles by Danilo Samà

Danilo Samà

CDC Cartel Damage Claims; Law & Economics LAB; LUISS “Guido Carli” University of Rome; University of Toulouse 1 - Toulouse School of Economics (TSE); University of Hamburg; Ghent University; Erasmus Rotterdam University; Aarhus University - School of Business and Social Sciences

Date Written: 2014

Abstract

In order to fight collusive behaviors, the best scenario for competition authorities would be the possibility to analyze detailed information on firms’ costs and prices, being the price-cost margin a robust indicator of market power. However, information on firms’ costs is rarely available. In this context, a fascinating technique to detect data manipulation and rigged prices is offered by an odd phenomenon called Benford’s Law, otherwise known as First-Digit Law, which has been successfully employed to discover the “Libor Scandal” much time before the opening of the cartel settlement procedure. Thus, the main objective of the present paper is to apply a such useful instrument to track the price of the aluminium traded on the London Metal Exchange, following the allegations according to which there would be an aluminium cartel behind. As a result, quick tests such as Benford’s Law can only be helpful to inspect markets where price patterns show signs of collusion. Given the budget constraints to which antitrust watchdogs are commonly subject to, a such price screen could be set up, just exploiting the data available, as warning system to identify cases that require further investigations.

Keywords: Benford’s law, cartel detection, collusion screening, competition authorities, data manipulation, monopolization, oligopolistic markets, price fixing, variance screen

JEL Classification: C10, D40, L13, L41

Suggested Citation

Samà, Danilo, Cartel detection and collusion screening: an empirical analysis of the London Metal Exchange (2014). Law & Economics LAB, LUISS “Guido Carli” University, Rome, Italy, pp. 1-18, Available at SSRN: https://ssrn.com/abstract=2425320 or http://dx.doi.org/10.2139/ssrn.2425320

Danilo Samà (Contact Author)

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