Cartel Detection and Collusion Screening: An Empirical Analysis of the London Metal Exchange

19 Pages Posted: 15 Apr 2014

See all articles by Danilo Samà

Danilo Samà

LUISS "Guido Carli" University of Rome; Erasmus Rotterdam University; Ghent University; University of Aarhus - School of Business and Social Sciences; Toulouse School of Economics; University of Hamburg; Law & Economics LAB

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 aluminum traded on the London Metal Exchange, following the allegations according to which there would be an aluminum 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). Available at SSRN: https://ssrn.com/abstract=2425320 or http://dx.doi.org/10.2139/ssrn.2425320

Danilo Samà (Contact Author)

LUISS "Guido Carli" University of Rome ( email )

Faculty of Economics
Viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://www.danilosama.com

Erasmus Rotterdam University ( email )

Campus Woudestein
Burgemeester Oudlaan, 50
Rotterdam, Zuid-Holland 3062
Netherlands

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Ghent University ( email )

Sint-Pietersnieuwstraat, 25
Ghent, 9000
Belgium

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University of Aarhus - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

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Toulouse School of Economics ( email )

Allée de Brienne, 21
Toulouse, 31015
France

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University of Hamburg ( email )

Mittelweg, 177
Hamburg, 20148
Germany

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Law & Economics LAB ( email )

Viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://www.danilosama.com

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