The Impact of Cartelization on Pricing Dynamics - Evidence from the German Cement Industry

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:http://ftp.zew.de/pub/zew-docs/dp/dp11067.pdf Non-technical summaryAlthough the pricing dynamics of hardcore cartels have been studied intensively from a theoretical perspective, empirical evidence is still rare. We combine publicly available data with a unique private data set of about 340,000 market transactions from 36 smaller and larger customers of German cement producers to study the pricing dynamics during and after the breakdown of a German cement cartel. We find that, first, after the breakdown of the cartel, cartel members reduce net prices to a far larger extent than gross prices and that, second, noncartel members slip under the price umbrella of the cartel to increase profits. Our results have important implications for both the design of screening tools to detect cartels as part of public enforcement and the calculation of damages as part of private enforcement of competition law. Das Wichtigste in KürzeWährend sich die Preisdynamik von Kartellen in den vergangenen Jahren einer intensiven THE IMPACT OF CARTELIZATION ON PRICING DYNAMICS EVIDENCE FROM THE GERMAN CEMENT INDUSTRYKai Hüschelrath AbstractAlthough the pricing dynamics of hardcore cartels have been studied intensively from a theoretical perspective, empirical evidence is still rare. We combine publicly available data with a unique private data set of about 340,000 market transactions from 36 smaller and larger customers of German cement producers to study the pricing dynamics during and after the breakdown of a German cement cartel. We find that, first, after the breakdown of the cartel, cartel members reduce net prices to a far larger extent than gross prices and that, second, noncartel members slip under the price umbrella of the cartel to increase profits. Our results have important implications for both the design of screening tools to detect cartels as part of public enforcement and the calculation of damages as part of private enforcement of competition law.Keywords Antitrust policy, cartels, umbrella pricing, net prices, cement, screening, damages We are indebted to CDC Cartel Damage Claims (Brussels) for the provision of the data set and their cooperativeness in discussing our analyses and results. We are particularly grateful to Jakob Rüggeberg (CDC) for his very detailed remarks and suggestions on earlier versions of the paper. Simon Reese provided excellent research assistance.

Cartel Detection in Procurement Markets

“…First, our analysis focuses on gross prices rather than net prices. As a consequence, it can very well be the case that gross prices remain unchanged after the cartel breakdown while net prices were reduced substantially (see Hüschelrath and Veith, 2011, for empirical evidence). Second, post-cartel price adjustments on the basis on individual customers might not take place immediately but are subject to time lags of different sizes depending on factors such as individual demand patterns and general contract terms.…”

Cartel Detection in Procurement Markets

“…First, our analysis focuses on gross prices rather than net prices. As a consequence, it can very well be the case that gross prices remain unchanged after the cartel breakdown whereas net prices were reduced substantially (see Hüschelrath and Veith, , for empirical evidence). Second, postcartel price adjustments based on individual customers might not take place immediately but are subject to time lags of different sizes depending on factors such as individual demand patterns and general contract terms.…”