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Mitsuru Igami, Ph.D.

Yale University, USA
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Authors: Mitsuru Igami and Takuo Sugaya

Abstract: Do mergers help or hinder collusion? This paper studies the stability of the vitamin cartels in the 1990s and presents a repeated-games approach to quantify "coordinated effects" of a merger. We use data and direct evidence from American courts and European agencies to show the incentive compatibility constraint (ICC) of the short-lived vitamin C cartel was violated when it actually collapsed in 1995, whereas the ICCs of the long-lived cartels (vitamins A and E, and beta carotene) were satisfied until the prosecution in 1999. Simulations suggest a hypothetical merger could have prolonged the vitamin C cartel. Both the direction and magnitude of coordinated effects critically depend on firms' cost asymmetry and the size of synergy in a non-monotonic manner, highlighting the desirability of quantitative analysis.

Keywords: Antitrust, Cartel, Collusion, Coordinated effect, Merger, Repeated game

JEL Classification: D43, L13, L41
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Full Text: “Measuring the Incentive to Collude: The Vitamin Cartels, 1990-1999”