Monday, May 5, 2008

Collusion in British supermarkets?

The Economist reports that one of the British supermarkets has confessed to collusion, taking advantage of a cartel amnesty program that rewards the first firm that "rats" on their fellow conspirators, thus creating a race to the courthouse--a classic prisoners' dillemma.

However, groceries are an unlikely industry for price fixing. How would a cartel monitor prices, detect cheating, and punish cheaters? Unlike recent cartel actions in industries like vitamins, paper, petrol, glass, bulk chemicals, groceries sell differentiated products, and the industry is undergoing rapid change (see the change in shares above).

In addition, the OFT's investigation appears to be on the buying, not the selling side of the industry. This kind of "monopsony" (or buying) power, is much less likely to harm consumers, unless it is also accompanied by a output or monopoly (selling) cartel.

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