A common assumption in the literature on cartels is that the cartel is all-inclusive. However, many known cartels did not include all firms in the relevant market. This thesis is about such incomplete cartels. It is organized around four main research questions: What explains optimal cartel size to be less than all-inclusive? What are the traits of firms that join the cartel? What is the relationship between industry structure and optimal cartel size? and, How can economics be used to detect (incomplete) cartels?
It is found that the optimal cartel size is all-inclusive when colluding is
costless, but less than all-inclusive when colluding is costly and the smallest
firms in the industry are sufficiently small. Moreover, the incentive to take
part in a cartel is positively correlated with firm size. We therefore should
not expect full collusion in an industry with one or more relatively small
suppliers. In addition, the thesis discusses how economics can be used to detect
(incomplete) cartels. The main focus is on basing-point pricing; a pricing
method that is known to have been abused by incomplete cartels to protect local
markets against distant competitors. It is shown that the basing-points applied
by a cartel differ from that of competitive
firms and that collusive basing-point pricing is difficult to detect with known methods. Based on this, a novel detection test is developed that is hard to beat for cartels using this otherwise elusive form of price-fixing.