Business Economics and Public Policy Papers

Document Type

Journal Article

Date of this Version

2014

Publication Source

The Analysis of Competition Policy and Sectoral Regulation

Volume

4

DOI

10.1142/9789814616362_0007

Abstract

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.

Keywords

cartel, compliance, non-compliance

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Date Posted: 27 November 2017