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See version in english The Economics of Collusion: Cartels and Bidding Rings, Robert C. MARSHALL et Leslie M. MARX

MARSHALL Robert C. et MARX Leslie M., The MIT Press, 2012, 304 p.

The Economics of Collusion : Cartels and Bidding Rings, Robert C. MARSHALL et Leslie M. MARX

Robert C. Marshall, Leslie M. Marx

The Economics of Collusion : Cartels and Bidding Rings, by Robert Marshall (Liberal Arts Research Professor of Economics, Penn State University) and Leslie Marx (William and Sue Gross Research Fellow and Professor of Economics, Fuqua School of Business, Duke University), offers a unique and authoritative contribution to the rich, and diverse, economics of anticompetitive horizontal agreements between firms. The focus of the book is on collusive activity by explicit cartels. That is, cartels that fit squarely in the “Hard-core” category and form the bulk of the collusive activity prosecuted by enforcement agencies.

Developing a deep understanding how collusion works is clearly important. Detecting cartels, designing enforcement regimes, implementing compliance systems and assessing damages all require a detailed appreciation of the mechanics of collusion and, equally importantly, why the certain collusive schemes are so prevalent and, at times, successful. Further, depending on the time period and jurisdiction, in the order of 50 percent of enforcement activity is directed at prosecuting collusive activity. Despite this, a modern unified treatment of the economics of collusion has, until now, been missing. Marshall and Marx have filled this void with a thoughtful, and enjoyably readable, treatment.

The book is written so as to be accessible to anyone with a basic undergraduate grasp of economics. Equivalently, anyone who can follow the economic reasoning developed in the classic antitrust treatises by Robert Bork, Phillip Areeda or Herbert Hovenkamp will comfortably follow the reasoning developed by Marshall and Marx. Indeed, the authors’ clarity and exposition expositional ease can lull the reader into a true sense of security, making insights that are deep and profound seem simple and natural. The book offers much that will be provocative and thought provoking to the experienced practitioner or research academic, even those that have an intimate familiarity with the literature on collusion.

What is most striking, and enjoyable, about the book is the strong links drawn between the cartels observed in practice and the conceptual framework developed to analyze them. Marshal and Marx never develop an abstract idea without first illustrating it in a specific context. This empirically focused treatment of theory is further supported by a plethora of footnotes offering further links to specific cases and fact-patterns, drawn from a wide variety of industries and jurisdictions. This reliance on fact patterns drawn from practice makes the book tremendous fun to read. The authors note that “Each of us would rather read European Commission decisions for cartel cases than best-selling nonfiction literature”. This enthusiasm for understanding cartel activity as it actually occurs in the market infects the entire book.

The book starts with a series of extended examples. These depict fact patterns that will be familiar to anyone with even a passing interest collusive activity. These examples are used to provide a context and narrative through which to develop the analytical frameworks that organize much of the discussion. These narratives are also used to explain the many interesting questions that arise in study of collusive activity.

Have set the context, the authors then discuss the questions central to collusive activity : “what it is, why it is profitable, how it is implemented and how it might be detected ?” The treatment, right from the start, draws a distinction between collusive activity in markets that operate via bidding (i.e. collusion in auctions and competitive tendering environments) and other market forms. Thus bid-rigging is treated separately, while price fixing and market division schemes are considered concurrently. To my mind this makes a lot of sense, since, empirically, bid-rigging schemes tend to operate in ways that are distinct from other forms of cartel. Having made this distinction, in each case, the authors examine how competition is suppressed, how the agreement is implemented and how it tends to be enforced. Issues specific to each context are also carefully drawn out. For instance, in the treatment of bidding-rings, the use of knock-out auctions is carefully examined, as are the various dimensions on which an auctioneer can impede efficacy of the ring.

The remaining third of the book is devoted to detection. This is developed both in the context of the challenges facing an enforcement agency and in the context of a firm looking to design an audit procedure as part of a compliance system. The treatment here is, perhaps, the most novel part of the book and clearly draws on the authors’ extensive experience as consulting experts in the area.

As before, the distinction is drawn between bidding-rings and other cartels. For each, a set of “plus-factors”, or red-flags, is developed. The discussion of the plus factors is presented with subtlety and care, and with an eye to why the plus factors are informative and when they may give rise to false-positives. This section of the book is an accessible, and significant, intellectual synthesis of many of the ideas that have preoccupied both authors for their entire research careers.

This discussion is further enhanced by consideration of the analytical tools that might support an investigation based on them. Here the discussion weaves easily between specific fact patterns, an illuminating and self-critical discussion of the use of statistical evidence, theory and, both for bidding rings and price-fixing cartels, a substantial data-driven example. This discussion is instructive, both for those that are called upon to conduct analysis in support of a detection effort, and also for those who are called upon to interrogate it the results of that analysis.

The book can be read at many levels. For the student, it can be read quickly and the main insights absorbed easily. For the practitioner, or researcher, the book can be profitably read at a much slower pace. Although alluded to earlier, special mention should be made of the thorough footnotes in every chapter. Reading footnotes is often like banging ones head against a wall : pleasant only in so far as it feels good when one stops. Marshall and Marx, however, have liberally sprinkled their book with gems, many in the text, but many, also, in the footnotes. There are many links to related cases, and to common issues that provoke thought. The footnotes also contain some of the more colorful elements of fact patterns that, while not essential to the intellectual development in the text, provide human color to the facts as presented. Many produce a grin, and a few will provide substantial amusement.

It should be clear by now that I admire this book enormously. It contains much that I find thought provoking (in shaping my own research, I find the discussions of how cartels exclude competitors and the discussions of regulatory capture particularly notable) and much that is new (the section of detection stands out in this regard). Perhaps most importantly it is fun to read. Every economist and lawyer with in interest in collusive activity will profit from, and enjoy, reading this book.

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Author

  • University of California - Los Angeles (UCLA)

Quotation

John Asker, The Economics of Collusion: Cartels and Bidding Rings, Robert C. MARSHALL et Leslie M. MARX, May 2013, Concurrences Review N° 2-2013, Art. N° 52089, p. 224

Editor The MIT Press

Date 10 January 2014

Number of pages 320

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