Distinguishable Patterns of Competition, Collusion, and Parallel Action

Smith, James L.

doi:10.2139/ssrn.410321

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Distinguishable Patterns of Competition, Collusion, and Parallel Action

MIT Center for Energy and Environmental Policy Research, Working Paper No. 2003-006

31 Pages Posted: 4 Jun 2003

See all articles by James L. Smith

James L. Smith

affiliation not provided to SSRN

Date Written: May 16, 2003

Abstract

Alternative market structures are distinguishable by the degree of parallel action exhibited by producers. We show that the correlation between output levels varies systematically with the degree of interdependence among firms, and establish an ordering among alternative behavioral hypotheses (Cournot, Stackelberg, Edgeworth/Bertrand, collusion, and perfect competition). Because the ordering is invariant to the values of background parameters, statistical tests of market conduct may be possible even when the slopes of the demand curve and marginal cost curves are unknown. An application to the world oil market finds strong evidence of collusive behavior among OPEC members, but not elsewhere.

Keywords: Cartels, collusive behavior, interdependence, oligopoly, OPEC

JEL Classification: D43, L11, L13, Q41

Suggested Citation: Suggested Citation

Smith, James L., Distinguishable Patterns of Competition, Collusion, and Parallel Action (May 16, 2003). MIT Center for Energy and Environmental Policy Research, Working Paper No. 2003-006, Available at SSRN: https://ssrn.com/abstract=410321 or http://dx.doi.org/10.2139/ssrn.410321