Measuring the Incentive to Collude: The Vitamin Cartels, 1990-1999

Why do some cartels survive for a decade but others collapse within a few years? We study one of the most prominent cases in recent history, the vitamin cartels, to quantify the member firms' incentives to collude. American court documents and European criminal investigation provide direct evidence on the cartels' organization as well as the leading firms' internal cost data, which we analyze within a standard repeated game framework. Preliminary results suggest the cartel leader's incentive diminished significantly at the time of the Vitamin C cartel's actual collapse in 1995, mainly because of growing supply from fringe competitors in China, whereas the markets for Beta Carotene, Vitamin A, and Vitamin E remained stable. We also find that the BASF-Takeda merger in 2001, if consummated a decade earlier, would have prolonged the Vitamin C cartel.