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8 Econ. Comm. Newsl. 10 (2008)
Competition Agencies are Screening for Conspiracies: What Are They Likely to Find

handle is hein.journals/ecoconw8 and id is 10 raw text is: Economics Committee Newsletter Competition Agencies are Screening for Conspiracies: What are they Likely to Find? Rosa M. Abrantes-Metz LECG, LLC Luke M. Froeb* Owen Graduate School of Management, Vanderbilt University Why screens have a hard time finding conspiracies The regulatory pursuit of price-fixing conspiracies is made in three phases: (i) detection; (ii) prosecution; and (iii) relief. Although efforts like the Amnesty Programs of the U.S. Department of Justice and the European Commission have given conspirators an incentive to self-identify, detecting and prosecuting price fixing among those that want to conceal their behavior remains a difficult task. recently collapsed, as in Figure 1, taken from Shor and Froeb (2005).1 In 1988, following reports of an investigation into a conspiracy among sellers of frozen seafood, prices dropped sharply. This conspiracy collapse provides a good natural experiment that the authors use to estimate the effects of the conspiracy, taking the post conspiracy period as a control group. A competitive model was fit to the post- conspiracy data to develop an empirical model of the benchmark competitive price which was backcast into the collusive period to determine that the cartel raised prices by 23%. While data screens to detect conspiracies have not played a major role in identifying collusion, this may be starting to change as regulatory agencies, academics and private consultants develop new screens and gain a better understanding of how cartels form, operate, and break up. In this article, we focus on the problem of detecting a conspiracy from data alone, which we call a screen. Screening for conspiracies is more difficult than the related problems of proving the existence of an alleged cartel or computing damages from a proven cartel. All three share the problem of distinguishing competitive from anticompetitive behavior, but proving existence and computing damages are made somewhat easier as they present the investigator with a hypothesized cartel whose behavior can be compared to a control group. For example, estimating damages is relatively easy if a conspiracy has Volume 8, Number I Spring 2008

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