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Article: A Cartel's response to cheating: an empirical investigation of the De Beers diamond empire.
- Article from:
- Southern Economic Journal
- Article date:
- July 1, 2006
- Author:
CopyrightCOPYRIGHT 2006 Southern Economic Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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1. Introduction
Cartel theory suggests that serious punishment in the form of price competition is the predicted response to cheating by a cartel member, but recent work on cartel operations suggests that some cartels might use a richer set of more measured responses to support their arrangements. Levenstein (1997) and Genesove and Mullin (2001) describe cartels that used limited retaliation, as well as communication, to maintain collusion. However, even these cartels reacted to massive public cheating with the retaliatory response predicted by traditional theory.
The record of the diamond cartel, headed by De Beers, suggests that in some circumstances ...