The effects of asymmetric costs on cartel damages

Abstract

Collusion models are used to estimate cartel overcharges and the resultant welfare losses. Most applications assume symmetric costs and homogeneous products, assumptions that rarely are satisfied in reality. Relaxing these assumptions, we find that model misspecifications result in overestimation of the damage caused by cartels - and possibly in an unfair distribution of the compensation. The estimation error increases with the degree of cost asymmetry and product differentiation