Lessons for competition policy from the vitamins cartel

Mergers have the potential for negative social welfare consequences from increased likelihood or effectiveness of future collusion. This raises the question of whether there are meaningful thresholds for the post-merger industry that should trigger significant scrutiny by the Department of Justice or Federal Trade Commission. This chapter provides empirical analyses relevant to this question using data from the Vitamins Industry, where explicit collusion was admittedly rampant in the 1990s. In analyzing prices in the post-plea period, which is a period of potential tacit collusion, we find that vitamin products with two conspirators continue as if the explicit conspiracy never stopped, while products with three or four conspirators return to pre-conspiracy pricing, or lower, quite quickly. Although it is difficult to extrapolate to other industries, the evidence suggests that, by itself, a proposed reduction in the number of firms manufacturing a given product from four to three via a merger is not problematic in terms of the efficacy of tacit collusion. The danger of a three firm industry is that it is close to duopoly, and the benefits of explicit collusion in a duopoly appear to be sustainable via tacit methods well past intervention by enforcement authorities.