Horizontal concentration and anticompetitive behavior in the central Canadian cement industry: testing arbitrage cost hypotheses

Consider a market with a small number of firms attempting to collude. If th ey successfully act as a dominant firm, they will raise price. This in turn will expand output by any fringe firms and thus reduce the market share of the colluding group. Thus, higher prices will decrease concentration over time. Here we test this hypothesis, using a modification of Spiller and Hua ng (1986) and data from the post-1974 Toronto cement market. The weight of the evidence indicates that market price has a negative effect on concentra tion, implying that the firms in this market act, with significant though l imited, success as a cartel. (C) 1999 Elsevier Science B.V. All rights rese rved. JEL classification: L13: T41: L61.