Buyers’ Cartels: Prevalence and Undercharges

This article supplements information on 24 U.S. domestic buyers’ cartels cited in a 2010 book by Blair & Harrison by assembling and analyzing a sample of 49 episodes of buyers’ cartels that have international membership or multijurisdictional price effects. It appears that such cartels comprise less than 8 percent of the total, that they are clustered in primary-products and services industries, that they employ bid rigging conduct to a greater extent than sellers’ cartels, and that undercharges average close to 20 percent of the but-for price. These quantitative characteristics are supplemented by sketches of the conduct and prosecutions of a few of the better-documented cases of buyers’ cartels.

By John M. Connor¹

I. INTRODUCTION

The economic theory of buyers’ price fixing is well established. If buyers are small enough in number and sufficiently cooperative, they may be able to form oligopsonies that can force down the prices of common inputs below the prices that would have reigned in a more competitive procurement market. In other words, powerful buyers can undercharge their input suppliers. Other facilitating conditions may have to be present to generate significant negative price effects. Among them are opportunities for intra-buyer communications behind a wall of secrecy, relatively atomistic suppliers, homogeneous products, geographic isolation, inelastic demand, and barriers for sellers to detect the undercharges.

Because of the economic