I read the article, also. The description of the game was a bit short and somewhat ambiguous.
The game is designed to show people who participate why it is hard to maintain collusion or price fixing amongst oligopolies, secret agreements are not enough. It was a good demonstration of the difficulties in maintaining a secret deal. Far better than simply reading about it.
A number of theorists think that price fixing is mystery because the economics of it should make any agreements disappear.
However, there are price fixings in the real world which are regularly prosecuted. So, how are the Ashley’s dealt with by those groups?
So, how are the Ashley’s dealt with by those groups?
Fortunately, I just finished reading Our customers are the enemy, a study of cartels in the ’80s and ’90s, so I can tell you!
Cartels have a number of ways, but the illegal ones have the most problems.
One of the most effective methods was used by Archer Daniels Midland in its lysine cartel: it built lysine plants of grotesque overcapacity, something like 30% of the global market, but only sold part of its peak production; its threat to defectors like Sewon (the Korean manufacturer) was that if they cheated on their quotas, it would unleash a price war that would drive it into trouble (apparently Sewon was very heavily in debt from financing its expansion, and like the 2 Japanese companies, it had minimal non-lysine business) or outright bankruptcy. This is similar to what De Beers & OPEC have sometimes done, IIRC.
Another method in other cartels is the companies shared their internal financial data (whose veracity would be guaranteed by third-party auditors), pooled all the revenues, and then divided accordingly. Obviously this makes it harder to cheat as well, and reduces any incentive.
An approximation to this would be market surveys, and if the surveys showed that any cartelist’s share had fallen at the expense of another’s, the offender would sell at-cost the product to the damaged party (one of te lysine mechanisms).
Some cartels just hold together because the corporate managers running the cartel have a collective interest in driving up the price & their division’s profits, but not much of one to engage in price wars for market share. (Such as the multiple vitamin cartels lasting many decades.)
Others, like the big German conglomerates or Japanese zaibatsu, have been aided by government complicity or active aid.
And then there often can be legal punishments for defectors—going back to the vitamin cartel, we can read in Wikipedia:
“Roche was fined accordingly [for the vitamin cartel], but a bungle on the part of the EEC allowed the company to discover that it was Adams who had blown the whistle. He was arrested for unauthorised disclosure — an offence under Swiss law — and imprisoned.”
(And the whistleblower on the lysine cartel, ironically, wound up staying in jail longer than any of the other malefactors because of his embezzlement.)
Finally, one threat in the US that can be used on a defector is that the amnesty program grants complete immunity from federal damages & prosecution to the first cartelist to come forward with good information about the cartel, and this also minimizes their civil liability too—while the other cartelists will still be vulnerable to the triple damages prescribed by anti-trust law, and the civil penalties. So if cheating gets too bad, the irked company can blow the whole thing up.
I read the article, also. The description of the game was a bit short and somewhat ambiguous.
The game is designed to show people who participate why it is hard to maintain collusion or price fixing amongst oligopolies, secret agreements are not enough. It was a good demonstration of the difficulties in maintaining a secret deal. Far better than simply reading about it.
A number of theorists think that price fixing is mystery because the economics of it should make any agreements disappear.
However, there are price fixings in the real world which are regularly prosecuted. So, how are the Ashley’s dealt with by those groups?
Fortunately, I just finished reading Our customers are the enemy, a study of cartels in the ’80s and ’90s, so I can tell you!
Cartels have a number of ways, but the illegal ones have the most problems.
One of the most effective methods was used by Archer Daniels Midland in its lysine cartel: it built lysine plants of grotesque overcapacity, something like 30% of the global market, but only sold part of its peak production; its threat to defectors like Sewon (the Korean manufacturer) was that if they cheated on their quotas, it would unleash a price war that would drive it into trouble (apparently Sewon was very heavily in debt from financing its expansion, and like the 2 Japanese companies, it had minimal non-lysine business) or outright bankruptcy. This is similar to what De Beers & OPEC have sometimes done, IIRC.
Another method in other cartels is the companies shared their internal financial data (whose veracity would be guaranteed by third-party auditors), pooled all the revenues, and then divided accordingly. Obviously this makes it harder to cheat as well, and reduces any incentive.
An approximation to this would be market surveys, and if the surveys showed that any cartelist’s share had fallen at the expense of another’s, the offender would sell at-cost the product to the damaged party (one of te lysine mechanisms).
Some cartels just hold together because the corporate managers running the cartel have a collective interest in driving up the price & their division’s profits, but not much of one to engage in price wars for market share. (Such as the multiple vitamin cartels lasting many decades.)
Others, like the big German conglomerates or Japanese zaibatsu, have been aided by government complicity or active aid.
And then there often can be legal punishments for defectors—going back to the vitamin cartel, we can read in Wikipedia:
(And the whistleblower on the lysine cartel, ironically, wound up staying in jail longer than any of the other malefactors because of his embezzlement.)
Finally, one threat in the US that can be used on a defector is that the amnesty program grants complete immunity from federal damages & prosecution to the first cartelist to come forward with good information about the cartel, and this also minimizes their civil liability too—while the other cartelists will still be vulnerable to the triple damages prescribed by anti-trust law, and the civil penalties. So if cheating gets too bad, the irked company can blow the whole thing up.