The Upsides of Collusion and Concentration

By Eric Fruits, Truth on the Market

Conspiracies and collusion often (always?) get a bad rap. Adam Smith famously derided “people of the same trade” for their inclination to conspire against the public or contrive to raise prices. Today, such conspiracies and contrivances are per se illegal and felonies punishable under the Sherman Act.

It is well known and widely accepted that collusion to suppress competition is associated with an increase in price, a transfer of consumer surplus to producers, and a deadweight loss. It seems that nothing good comes from anticompetitive collusion.

But what if there was some good from a conspiracy in restraint of trade?

Using data from the formation and breakup of illegal cartels, Hyo Kang finds higher levels of innovation—measured by patents and R&D spending—during the cartel period than in the period before the formation of the cartel or the period after the breakup of the cartel. 

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