Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance,

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Business Economics and Public Policy Papers
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cartel
compliance
non-compliance
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Economics
Public Affairs, Public Policy and Public Administration
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Harrington, Joseph E
Montero, Juan-Pablo
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This study investigates when a cartel that uses a sales quota allocation scheme monitors more frequently than it enforces; for example, monitoring of sales is done on a weekly basis but firms are only required to comply with sales quotas on a quarterly basis. In a simple three-period quantity game with i.i.d cost and demand shocks, we show that the volatility of a cartel member's sales follows a U-shape within the compliance horizon. In comparison, sales volatility is constant over time under competition. This result offers a simple empirical test for distinguishing collusion from competition using sales data.

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2014-01-01
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The Analysis of Competition Policy and Sectoral Regulation
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