Horizontal concentration and anticompetitive behavior in the central Canadian cement industry: Testing arbitrage cost hypotheses

Consider a market with a small number of firms attempting to collude. If they successfully act as a dominant firm, they will raise price. This in turn will expand output by any fringe firms and thus reduce the market share of the colluding group. Thus, higher prices will decrease concentration over time. Here we test this hypothesis, using a modification of and data from the post-1974 Toronto cement market. The weight of the evidence indicates that market price has a negative effect on concentration, implying that the firms in this market act, with significant though limited, success as a cartel.