Hub-and-Spoke Collusion with Horizontally Differentiated Spokes

Marco Duarte (University of Wisconsin)

January 11, 2022, 14:00–15:30


Room online

Job Market Seminar


A hub-and-spoke cartel, where firms (spokes) limit competition with the help of an upstream supplier(hub), is a type of collusive arrangement observed in a variety of industries. In most cases, spokes compensate the hub's help by excluding its rivals. Under those circumstances, how do hub and spokes divide the rents from collusion? We study a hub-and-spoke cartel with an exclusion condition between gas stations and distributors in the gasoline market of Brazil's Federal District. Using a structural model of demand, we estimate the gas stations' incentive to collude for different splits of rents. We show that, although more rents to distributors increased the stations' incentive to deviate from supplier, it also decreased their incentive to deviate on prices. In a counterfactual scenario where retailers extract all the rents from collusion, the cartel would need to decrease markups by 24% not to trigger price deviations. Another counterfactual points out that banning exclusive dealing contracts between stations and distributors would have destabilized the retail price coordination.