Anatomy of Cartel Contracts

Abstract

We study cartel contracts using data on 18 contract clauses of 109 legal Finnish cartels. One third of these clauses relate to raising profits. The remaining clauses deal with the instability of the cartel arrangement through incentive compatibility, cartel organization, or external threats. Cartels use three approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how they deal with instability. We find that industry- and cartel heterogeneity matters for contract design. The number of cartel members, the degree of product differentiation and industry- and macro-characteristics are associated with contract choices.