Cartel Member or Free Rider? Detecting Collusion at the Firm Level

In this article, an approach to detect collusive conduct at the firm level is proposed, which consists of comparing implied marginal costs under alternative approaches that focus on (i) demand estimation and the assumption that firms maximize own profits; and (ii) cost estimation and the assumption that firms minimize costs. If firms cooperate and assumption (i) is violated, cost estimates start to diverge. Based on this divergence, a switching regression technique is employed to detect deviations from a competitive equilibrium. This method is empirically tested using data on Swedish truck manufacturer Scania.