Research on corporate cartels plays an important role in how competition authorities address and prevent business collusion. Based on an analysis of two decades of collusion research, W. Benedikt Schmal shows how case studies have become increasingly important in the field, but questions whether this change is driven by the needs of research users or academics.

Business cartels devise diverse ways to hide their activities and strengthen their internal bonds. Japanese construction firms used the phases of the moon to coordinate their activities without direct communication. The German railway track manufacturers cartel met in brothels to  (arguably) increase in-group cohesion, and the German firetruck cartel used football match results to communicate pricing and mutually granted rebates. These anecdotes are the tip of the iceberg and highlight the enormous effort and creativity cartels invest into “stealthing” their illegal activities.

It is at the heart of cartel research, a branch of industrial organization (IO) research, to examine how different co-ordination and sanctioning mechanisms can stabilise cartels at the cost of consumer welfare. The theoretical and empirical approaches used in this field, therefore, have a significant influence on competition authorities and broader society.

To assess how research on cartels has evolved, I carried out a machine-learning based survey of the past two decades of collusion research. I used a structural topic model from the natural language processing toolbox to elicit how research on cartels has changed since 2000. This process captured 21 topics within a body of 777 academic publications that deal with cartels and collusion. Within the timespan of the study, there were major developments for this research field: The ubiquitous use of the internet for research communication, and in 2002 and 2006, the European Commission substantially updated its leniency scheme that grants partial or even complete immunity to key informants disclosing information on cartels.

Fig1: Topic probabilities over time. Black solid: Economic Environment, Attributes of the Market, Competition Analysis; Red solid: Case Studies.

To better understand the underlying ‘latent’ topics, I grouped them together in several categories and aggregated them into time series. The two most important categories are presented in Fig.1. The black line depicts topics addressing the economic environment of firms, attributes of the market cartels are active in and stylised competition analyses. The category describes a broad range of topics and, mostly, abstract modelling of general behavioural patterns of firms.

The dark red line, in contrast, presents the prevalence of case studies. These studies usually examine one uncovered cartel in detail, sometimes at the cost of generality. One can quickly draw from the figure’s values and the polynomial smooths (dotted lines) a persistent decline of the broader competition analyses (black) and a notable growth of the specialised case studies since 2009 (dark red). Earlier, the prevalence of case study topics fluctuated around 5%. This has subsequently quadrupled and accounts for approximately 20% of research in the field.

In many cases, they come with sophisticated structural estimations. While the impact of a particular cartel can be much more precisely estimated than in earlier times, there is the risk of missing more general considerations. Structural estimations of specific cartel cases enrich economic research on cartels substantially. However, their growing attractiveness in recent years parallels the decline in generalist competition analysis.

What makes the increase more meaningful are the journals in which these case studies are placed. Academic economists place great emphasis on the so-called “top five” journals that are considered to publish the most important and sophisticated work of the discipline. The two figures below depict the correlation of each topic with different types of journals. Fig,2 presents the topic correlations for these leading five journals. One can easily see that topics #1 and #2 are predominant. However, these are two of the three ‘case study’ topics. The third case study topic is #6, which correlates highly with the top five journals. Topics on the law and antitrust enforcement (#9 and #17), as well as on leniency (#16), also correlate notably with the top five journals. They also often tie in with case studies. In contrast, most other topics are not correlated at all with the top five publications. Thus, these leading journals heavily focus on case studies when publishing work on corporate cartels.

Fig.2: Correlation between computed latent topics and the influential `top 5’ journals in economics.

The pattern is flipped in industrial economics ‘field journals’, where topics are much more evenly distributed – as shown in Fig.3 below. This group comprises journals such as: The International Journal of Industrial Organization, The Review of Industrial Organization, Journal of Economic Behavior and Organization, the RAND Journal of Economics, and the Journal of Industrial Economics. These outlets are meaningful in the subdiscipline of industrial organization research and inform policymakers.

Fig.3: Correlation between computed latent topics and industrial organization (IO) field journals.

The top five journals are not only highly prestigious. They signal the kind of research that is currently ‘trending’ and valued in the field and, hence, the types of publications necessary for career progression. This suggests the possibility of a feedback loop, whereby a monoculture of case studies in the top journals triggers more of the same kind of research in the future at the expense of generalist studies.

The causality is tentative, but downstream, this could affect the ability of competition authorities to detect and thwart cartels through precautionary market design. Case studies and structural estimates can provide detailed insights into past cartels, but as we have seen, cartels can be remarkably idiosyncratic. This diversity limits their usefulness for policymakers seeking to develop more abstract rules and regulations for market and firm behaviour. This is not to say we should favour generalist over case studies. We need a diversity of approaches to understand and tackle the formation of cartels. However, we might question what our reasons for choosing one over the other really are.

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Image Credit: Reproduced with permission of the author.