Measuring the Incentive to Collude: The Vitamin Cartels, 1990-1999

Abstract

Do mergers help or hinder collusion? This paper studies the stability of the vitamin cartels in the 1990s and presents a repeated-games approach to quantify "coordinated effects" of a merger. We use data and direct evidence from American courts and European agencies to show the incentive compatibility constraint (ICC) of the short-lived vitamin C cartel was likely to be violated when it actually collapsed in 1995, whereas the ICCs of the long-lived cartels (vitamins A and E, and beta carotene) were satisfied until the prosecution in 1999. Simulations suggest some mergers could have prolonged the vitamin C cartel, but others could have further destabilized it, because both the direction and magnitude of "coordinated effects" depend not only on the number of firms but also on their cost asymmetry.

Keywords: Antitrust, Cartel, Collusion, Coordinated effect, Merger, Repeated game

JEL Classification: D43, L13, L41