Lessons for Competition Policy from the Vitamins Cartel

30 Pages Posted: 12 Oct 2005  

William E. Kovacic

George Washington University - Law School; King's College London – The Dickson Poon School of Law

Robert C. Marshall

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group

Matthew E. Raiff

Bates White, LLC

Date Written: September 2005

Abstract

Mergers have the potential for negative social welfare consequences from increased likelihood or effectiveness of future collusion. This raises the question of whether there are meaningful thresholds for the post-merger industry that should trigger significant scrutiny by the Department of Justice or Federal Trade Commission. This paper provides empirical analysis relevant to this question. The data does not come from an industry in which there were mergers, but instead from an industry in which explicit collusion was admittedly rampant in the 1990's, the Vitamins Industry. Different vitamin products are produced by different numbers of firms, and for different vitamin products, different numbers of firms were involved in the conspiracy. In analyzing post-plea pricing, we find that duopolies continue as if the explicit conspiracy never stopped, while products with three or four cartel firms return to pre-conspiracy pricing, or lower, quite quickly. Although it is difficult to extrapolate to other industries, the evidence suggests that, by itself, a proposed reduction in the number of firms manufacturing a given product from four to three via a merger is not problematic in terms of conduct following explicit collusion. The danger of a three-firm industry is that it is close to duopoly, and the collusive benefits of duopoly appear to be sustainable well past intervention by enforcement authorities.

Keywords: Collusion, antitrust, merger, coordinated effects, maverick, horizontal merger guidelines

JEL Classification: D43, K21, L11, L41

Suggested Citation

Kovacic, William E. and Marshall, Robert C. and Marx, Leslie M. and Raiff, Matthew E., Lessons for Competition Policy from the Vitamins Cartel (September 2005). Available at SSRN: https://ssrn.com/abstract=818744 or http://dx.doi.org/10.2139/ssrn.818744

William E. Kovacic

George Washington University - Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States
202.994.8123 (Phone)

HOME PAGE: http://www.law.gwu.edu/faculty/profile.aspx?id=1731

King's College London – The Dickson Poon School of Law

Somerset House East Wing
Strand
London, WC2R 2LS
United Kingdom

Robert C. Marshall

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
814-865-0030 (Phone)
814-865-0013 (Fax)

Leslie M. Marx (Contact Author)

Duke University - Fuqua School of Business, Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

Matthew E. Raiff

Bates White, LLC ( email )

No Address Available

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