Chapter 7 Cartels, collusion, and horizontal merger

This chapter discusses the principal theoretical and practical problems of the economics of cartels, collusion, and horizontal merger. Because the new theoretical approaches are not easily modified to encompass welfare considerations, except in a very partial-equilibrium setting, the positive side of the analysis has received more weight than the normative. The principal factors that facilitate or hinder collusion are considered. The chapter discusses the types and extent of horizontal collusion. The principal forms of explicit agreement are cartels, joint ventures, and horizontal mergers. Empirical tests of factors that facilitate or hinder collusion are of two sorts: econometric and experimental. In a series of experiments described in the chapter, the pricing performance of an industry with and without certain types of contractual clauses, advance notice of price changes, and public price posting are compared. The combination of these practices is sufficient to raise price significantly above the level observed when the practices are removed.