Study offers new view of how cartels work
Less data-sharing among firms can actually lead to more collusion, economists find.
By not sharing information about their pricing behavior, the firms make it easier to sustain collusion.
— Alexander Wolitzky, professor of economics
Suppose you were building a cartel — a group of business interests who coordinate to fix high prices that consumers must pay. How would you design it? Received economic wisdom says transparency among cartel members is crucial: If colluding suppliers share information, they can keep prices high and monitor members of the cartel to make sure no one deviates from the cartel’s norms.
A newly published paper co-authored by MIT economist Alexander Wolitzky offers a different idea: Firms do not have to share information extensively in order to collude. Indeed, the paper contends, extensive information-sharing can help firms undercut cartels and gain market share for themselves.
“If I’m thinking about entering your market, which I’m not supposed to do, but if I’m tempted to do it, then I can do it better if I have this information about your market,” Wolitzky says. The corollary, he notes, is that there appear to be cases where “by not sharing information about their pricing behavior, the firms make it easier to sustain collusion.”