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The post-cartel equilibrium puzzle in the German cement market: A reply to Huschelrath, Muller and Veith

By  |  June 24, 2013

Posted by D. Daniel Sokol

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    Niels Frank (Lademann & Associates GmbH and University of Bayreuth) and Philipp Schliffke offer The post-cartel equilibrium puzzle in the German cement market: A reply to Huschelrath, Muller and Veith

    ABSTRACT: Kai Huschelrath, Kathrin Muller, and Tobias Veith study the German cement cartel that lasted from the beginning of the 1990s until the end of 2001. Using both a during-and-after and a yardstick difference-in-difference approach, they estimate cartel overcharges between 20 percent and 26.5 percent, pointing out that they have explicitly considered alternative post-cartel transition periods. We show that the authors fail to account for the most important aspect of damage estimation in that case—a punishment phase that followed the internal breakdown of the cartel. The result is an estimated overcharge that is more than twice as large as it was estimated during court proceedings. We develop a simple procedure that helps to estimate the length of the post-cartel off-equilibrium period. Using this procedure, we show that any overcharge estimation that is not considering this punishment phase is highly non-robust and yields upward biased overcharge estimates.