The practical requirements of a successful cartel

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Towards understanding what makes a cartel successful, this chapter examines a variety of collusive practices with an eye to how they vary in their efficacy in establishing and sustaining supracompetitive prices and in the legal risk they create for firms. Four conditions for cartel success are reviewed and illustrated with numerous cases. First, firms must achieve a common understanding not to compete and how they are not to compete (coordination condition). Second, a cartel must adopt a collusive arrangement that incentivizes its members to comply (internal stability condition). Third, a cartel must tame the possible expansion of supply by firms not members of the cartel (external stability condition). Fourth, a cartel must avoid detection and penalization by the competition authority and customers (enforcement condition). Also discussed is the efficacy-exposure trade-off which recognizes that practices that are more effective for collusion also tend to come with more legal exposure.