Industrial Organization Workshop: Jorge Ale Chilet

Wednesday, November 1, 2017 at 11:40am to 1:10pm

Uris Hall, 498
Central Campus

Jorge Ale Chilet
University of Pennsylvania

"Gradually Rebuilding a Relationship: The Emergence of Collusion in Retail Pharmacies in Chile"

How does collusion start? This paper studies the emergence of collusion in the presence of multimarket contacts. It analyzes price fixing among the three main retail pharmacy chains in Chile, and how the firms were able to coordinate on a better equilibrium colluding gradually over products. The scope of collusion grew gradually as firms colluded on an increasingly larger number of drugs over a period of four months, raising the price of each product among themselves by means of staggered, sharp price increases. I claim that this behavior was due to the firms' mistrust of their competitors, which was stronger at the beginning of the coordination period. Gradualism allowed firms to learn their competitors' willingness to collude and build trust over time. I estimate the demand for the pharmacies in each market using the collusive price increases as supply-side shocks. I find that the pharmacies raised first the prices of products in which they were more differentiated. This result is consistent with trust building as collusion on differentiated products is safer due to smaller losses should the collusive scheme collapse. Detailed internal records of the pharmacies' monitoring activity of their competitors provide further evidence of trust building. Although monitoring peaked in the week of the coordinated price increases of each brand, the size of these spikes in monitoring declined over time, as would be expected from increased trust in the colluding firms.

Event Type

Seminar, Class/ Workshop

Departments

Economics

Tags

EconIO, economics, EconSeminar

Hashtag

#CornellEcon

Contact E-Mail

alg5@cornell.edu

Contact Name

Amy Moesch

Contact Phone

607-255-5617

Speaker

Jorge Ale Chilet

Speaker Affiliation

University of Pennsylvania

Open To

Cornell Economics Community (List Serve Members)

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