The Economics of Collusion: Cartels and Bidding Rings

by Robert C. Marshall, Leslie M. Marx

An examination of collusive what it is, why it is profitable, how it is implemented, and how it might be detected. Explicit collusion is an agreement among competitors to suppress rivalry that relies on interfirm communication and/or transfers. Rivalry between competitors erodes profits; the suppression of rivalry through collusion is one avenue by which firms can enhance profits. Many cartels and bidding rings function for years in a stable and peaceful manner despite the illegality of their agreements and incentives for deviation by their members. In The Economics of Collusion , Robert Marshall and Leslie Marx offer an examination of collusive what it is, why it is profitable, how it is implemented, and how it might be detected. Marshall and Marx, who have studied collusion extensively for two decades, begin with three the organization and implementation of a cartel, the organization and implementation of a bidding ring, and a parent company's efforts to detect collusion by its divisions. These accounts—fictitious, but rooted in the inner workings and details from actual cases—offer a novel and engaging way for the reader to understand the basics of collusive behavior. The narratives are followed by detailed economic analyses of cartels, bidding rings, and detection. The narratives offer an engaging entrée to the more rigorous economic discussion that follows. The book is accessible to any reader who understands basic economic reasoning. Mathematical material is flagged with asterisks.

302 pages, Hardcover

First published April 27, 2012

Reviews

[Daniel Urdaneta · Rating 3 out of 5]

Good material for practitioners to delve into (especially for lawyers, since the book delivers mostly general insights and intuitions, which may be too generic for an economist). Nonetheless the book has several misses:
- Many repeated ideas, which makes a cover-to-cover reading tiresome and slightly unrewarding. Chapters 2-4 cover all the main insights and the rest of the book is just going over the same ideas with a slightly deeper approach.

- Outdated case law, even for its 2012 printing date. Especially evident for US cases (sometimes dating back to the 1930s!).

- Too much focus on analyzing ascending-bid auctions, which although are very intuitive to understand, are not common in practice on the types of industries most prone to collusion. The overt focus on ascending-bid auctions led me to believe the authors wrote this book more to show off the intuitions of earlier papers they worked on, rather than provide actionable and general insights about collusion.

[Marks54 · Rating 4 out of 5]

This book summarizes current theory, research, and court results concerning the economics of collusion, with a special focus on cartels and bidding (auction) rings. It is theoretically motivated by economic ideas of business strategy - how the actions firms take can be analyzed in terms of investments that enhance profitability, remove obstacles to profitability, or encourage consistent behaviors that promote profitable results while also addressing civil and criminal on corporate behavior that are enforced by government and private regulators.

This reads like a strategy text for establishing and maintaining cartels of various forms. The economic content of these studies is a bit dense and not for the faint of heart, but the material is relatively accessible - there are limits of course - and provides rewards for slogging through.