The Economics of Collusion ─ Cartels and Bidding Rings

Explicit collusion is an agreement among competitors to suppress rivalry that relieson interfirm communication and/or transfers. Rivalry between competitors erodes profits; thesuppression of rivalry through collusion is one avenue by which firms can enhance profits. Manycartels and bidding rings function for years in a stable and peaceful manner despite the illegalityof their agreements and incentives for deviation by their members. In The Economics ofCollusion, Robert Marshall and Leslie Marx offer an examination of collusive behavior:what it is, why it is profitable, how it is implemented, and how it might be detected. Marshall andMarx, who have studied collusion extensively for two decades, begin with three narratives: theorganization 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, butrooted in the inner workings and details from actual cases--offer a novel and engaging way for thereader to understand the basics of collusive behavior. The narratives are followed by detailedeconomic analyses of cartels, bidding rings, and detection. The narratives offer an engaging entreeto the more rigorous economic discussion that follows. The book is accessible to any reader whounderstands basic economic reasoning. Mathematical material is flagged with asterisks.

Robert C. Marshall is Liberal Arts Research Professor of Economics at Pennsylvania State University. Leslie M. Marx, a former Chief Economist at the U.S. Federal Communication Commission, is Professor of Economics at the Fuqua School of Business at Duke University.