A mnemonic for the major factors influencing the likelihood of collusion
In the typical industrial organization textbook and class, and in the courtroom, numerous factors are identified as providing a predisposition to a cartel. These factors include cost differences, product differentiation, number of firms, technology, growth of the industry, elasticity, frequency of sales, number and size distribution of sellers and buyers, discount rate, type of competition, vertical integration, cost ratio, imports, sealed bidding, social structure and track record, future expectations, recognition of interdependence, announcements and exchanges of economic information, multimarkets, etc. There are many factors to keep in mind. Fortunately, the accumulated theoretical and empirical work on collusion suggests that we can, for all practical purposes, focus on the factors contained in the mnemonic word CARTEL. The key factors are: Concentration, Additional, Revenue, Talk, Entry, Likeness.
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