The team at Planet Money has the scoop on tacit collusion
LEILA FADEL, HOST:
If you go to the ice cream section of your supermarket, you might notice the two big players don't make the same flavors. Haagen-Dazs makes mostly smooth flavors, like chocolate and coffee. Ben & Jerry's makes mostly chunky flavors. Think cookie dough. Curious. Amanda Aronczyk of our Planet Money podcast looked into it and has this scoop.
AMANDA ARONCZYK, BYLINE: If you ask Christopher Sullivan what's in his beloved Chunky Monkey ice cream, he will not hesitate to answer.
CHRISTOPHER SULLIVAN: Banana ice cream with walnuts and chunks of dark chocolate.
ARONCZYK: Christopher is a professor at the University of Wisconsin-Madison. And when he stares at these two brands in the freezer, he sees their relationship like an economist.
SULLIVAN: Is this just the result of natural competition between these firms? Or is there something potentially beyond that going on?
ARONCZYK: He says that they could make both chunky and smooth flavors. Like, for Ben & Jerry's, it would be easy to simply not put the big chunks in.
SULLIVAN: You can't make Coffee Heath Bar Crunch without making coffee ice cream.
ARONCZYK: So Christopher suspected that perhaps these two companies weren't truly competing with each other. Maybe there was some kind of collusion, which would be bad for consumers. Prices could be higher. But was there anything illegal going on here? For that question, I went to Fiona Scott Morton, professor of economics at the Yale School of Management.
FIONA SCOTT MORTON: If you meet with the neighboring supermarket in the parking lot at the dead of night and set a price for something eggs - bananas, roast beef - that's illegal.
ARONCZYK: And indeed, this kind of parking lot price fixing really happens. Fiona says the key to such cases is proof of an explicit deal. But there is another kind of collusion, tacit collusion, no formal agreement between competitors. It's made up of subtle signals - your winks, your nods. This is legal. So I asked Fiona about the ice cream case.
What would it take to put the ice cream execs into prison?
MORTON: Oh, I think they would have to talk to each other about either setting prices or not innovating in each other's direction. And that conversation would need to be memorialized in a recording device or a memo or something.
ARONCZYK: Proof. I went back to Christopher to ask if he had any. And he said, no, he hasn't found any.
SULLIVAN: I don't believe that either Ben & Jerry's or Haagen-Dazs engaged in any behavior that's illegal in the United States.
ARONCZYK: We heard from both Haagen-Dazs and Ben & Jerry's, and they agree they have not colluded. They both say that they're just giving their customers what they want. But Christopher says that regardless of whether it's explicit or tacit collusion, when he looked at the data from 2006 to 2013, it affected the cost at the supermarket.
SULLIVAN: Prices are 20 to 50% higher for pints of Ben & Jerry's and Haagen-Dazs than they would have been if the firms had not coordinated on products and prices.
ARONCZYK: So OK, Christopher did this as a playful way to look at competition, but there are real implications. In markets with just two or three players, this kind of tacit collusion happens. And it makes me wonder about car rental companies, candy-makers, concert ticket sellers. Wherever you see a suspicious lack of competition, you should ask yourself, am I paying more because of this? Consider it a new economic standard for collusion. Does it pass the Chunky Monkey test? Amanda Aronczyk, NPR News.
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