Cartel price announcements: The vitamins industry

The primary manufacturers of vitamins admitted to participating in international market-share-agreement cartels for several years during the 1990s. Their announced price increases appeared in leading trade journals. We show that price announcements during the cartel period, and the lead times before these prices took effect, were fundamentally different in character from price announcements when explicit collusion was less likely. These differences are consistent with our model of price announcements where we account for the importance to the cartel of buyer acceptance of, or resistance to, a price increase. Acceptance avoids costly market-share reallocations among members of an explicit cartel. Logit estimates show that after 1985, the likelihood of a price announcement is largely driven by the length of time between announcements, rather than cost or demand factors, suggesting that the price announcements after 1985 stem from cartel meetings. © 2007 Elsevier B.V. All rights reserved.

Duke Scholars

Author Leslie M. Marx Fuqua School of Business