Abstract

A formal cartel organization sets up a multilateral relationship between firms in a given industry. While standard contracting literature has studied bilateral monopoly relationships in detail, there are horizontal relationships, like cartels, that also have contractual aspects. To shed light on how these contracts work, this paper takes a sample of legal formal cartel contracts and examines their structure and durability. Borrowing from industrial organization theories and transaction cost theories, the empirical model tests for the importance of demand uncertainty and cartel organizational characteristics in determining cartel contract duration. The results show that the more uncertain the environment within which the cartel operates, the shorter the expected cartel duration. Other industry structure characteristics and cartel organization variables included in the empirical model have a much weaker influence on duration.

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