EX-POST EVALUATION OF MEAN-VARIANCE CARTEL FILTERS

Ramalho, Matheus Humberto Migliari; Ribeiro, Eduardo Pontual

doi:10.1590/198055272622

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Revista de Economia Contemporânea

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Special Section on Competition Policy Analysis • Rev. econ. contemp. 26 • 2022 • https://doi.org/10.1590/198055272622 copy

EX-POST EVALUATION OF MEAN-VARIANCE CARTEL FILTERS

AVALIAÇÃO EX-POST DE FILTROS DE CARTEL BASEADOS EM MÉDIA E VARIÂNCIA DOS PREÇOS

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

This study provides an ex-post evaluation of selected filters to find cartels. We evaluate whether filters incurred in type I errors, i.e., failing to recognize the presence of a cartel. We use seven cartel cases in the retail fuel sector in Brazil, for which detailed local price and gross retail margins are available. Cartel cases provided 14 fuel-location events. The evaluated methods include GARCH-based and structural break methods from the international literature and three filters associated with Brazilian antitrust and regulation authorities (ANP, SBDC, and local correlation). All methods are based on an analytical framework which considers cartels as periods of higher average prices (margins) and lower price (margin) variance. Our results indicate that our filters failed to correctly signal most fuel-location cartel events, even using endogenous model-based price changes dates. The problems filters show of detecting actual cartels may be due to difficulties dating cartels or the possibly inappropriate use of price mean-variance markers to evaluate cartel behavior.

KEYWORDS:
collusion; economic filter; fuel markets

Method	Variables	Statistical methods	Cartel Identification
SBDC	Average gross retail margin (state and relevant market); retail price variation coefficient (relevant market)	correlation coefficient	Increased average gross retail margin, correlation below zero, and opposite trend between average gross retail margins in the relevant markets and the state.
Ragazzo and Silva (2006RAGAZZO, C. E. J.; SILVA, R. M. Aspectos econômicos e jurídicos sobre cartéis na revenda de combustíveis: uma agenda para investigações. Documento de Trabalho n° 40. Brasília: SEAE. 2006. )		correlation coefficient
ANP	Retail and wholesale fuel price variation coefficient and average gross retail margins (in the relevant market and “similar” cities)		Retail price variation coefficient below 0.010, variation coefficient of the price of retailers and wholesalers not linked, an increase in average gross retail margin not followed by changing in wholesale prices, differing trends of the average gross retail margin between relevant and comparable markets
Pedra and Esteves (2010)
GARCH with dummies	Average retail price	GARCH	Variance model with a negative dummy and a positive mean price
Bolotova, Connor, and Miller (2006)	Average retail price	GARCH
Local Correlation	Average retail prices and average gross retail margin variation coefficient	Global and local correlation	Both correlations (global and local) below -0.8
Cuiabano and Albuquerque (2015)		Global and local correlation	Both correlations (global and local) below -0.8
Structural Break	Average retail prices	Bai-Perron test	The first break should indicate an increase in average prices and a decrease at the second break at the end of the cartel.
Boswijk, Bun, and Schinkel (2019BOSWIJK, H. P; BUN, J. G.; SCHINKEL, M. P. Cartel dating. Journal of Applied Econometrics, v. 34, n. 1, p. 26-42, 2019. DOI: https://doi.org/10.1002/jae.2660. https://doi.org/10.1002/jae.2660... )	Average retail prices	Bai-Perron test

Relevant Market	Case number	Product	Cartel Period
Belo Horizonte/MG Metropolitan Region	08700.010769.2014-64	Gasoline and ethanol	03.2007 - 04.2008
Caxias do Sul/RS	08012.010215/2007-96	Gasoline, ethanol, and diesel	07.2004 - 04.2006
Londrina/PR Region	08012.011668.2007-30	Gasoline and ethanol	04.2007 - 08.2007
Santa Maria/RS	08012.004573/2004-17	Gasoline and ethanol	09.2002 - 01.2004
São Luis/MA	08700.002821/2014-09	Gasoline, ethanol, and diesel	02.2011 - 05.2011
Teresina/PI	08700.0005471/2008-95	Gasoline	05.2004 - 08.2005
Vitoria/ES Metropolitan region	08012.008847/2006-17	Gasoline	12.2006 - 03.2007

		Method
Relevant Market	Product	ANP	SBDC	Local Correlation	GARCH	Structural Break
Belo Horizonte/MG	Gasoline	Detected	Detected			Detected
Belo Horizonte/MG	Ethanol
Caxias do Sul/RS	Gasoline
	Ethanol					Detected
	Diesel
Londrina/PR	Gasoline
Londrina/PR	Ethanol
Santa Maria/RS	Gasoline
Santa Maria/RS	Ethanol
São Luis/MA	Gasoline	Detected			Detected
	Ethanol
	Diesel	Detected			Detected
Teresina/PI	Gasoline	Detected
Vitória/ES	Gasoline

Note: If most markers in the economic filter of each method identified cartel results, the cell indicated “Detected.” If the economic filter has at least one marker in each method with cartel results, the cell is painted light gray. There are five markers in the ANP method; four, in the SBDC method; three, in the local correlation method; four, in the GARCH method; and six, in the Structural Break method.
Source: Own elaboration based on ^Appendix APPENDIX Table A1 Disagregated cartel marker results Belo Horizonte Caxias do Sul / RS Londrina / PR Cartel markers Gasoline Ethanol Gasoline Ethanol Diesel Gasoline Ethanol ANP - price CV below 0.01 ANP - lower retail price CV and higher wholesale price CV × × × × ANP - higher retail margin during cartel × × × ANP - higher retail margin during cartel [significant dummy] × × × ANP - margin increase in cartel region but not in comparable areas × SBDC - higher retail margin during cartel × × × SBDC-average margin and margin CV negative correlation as cartel begins × × × SBDC-control region margin uncorr. with cartel region margin during cartel SBDC-margin region positive cartel region dummy and negative interact × × × × Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start × × Local Corr. -average margin and margin CV local corr. insignif. after cartel start GARCH - GARCH price volatility model negative dummy × GARCH - GARCH price mean model positive dummy GARCH - ARIMA price model positive dummy GARCH - realized price dispersion negative dummy GARCH - realized price CV negative dummy × SB - average price decrease break at cartel end date × × SB - price CV increase break at cartel start date × SB - price CV decrease break at cartel end date × SB - average margin increase break at cartel start date × × × × SB - average margin decrease break at cartel end date × × Santa Maria - RS São Luís - MA Teresina Vitória Cartel Markers Gas Ethanol Gas Ethanol Diesel Gas Gas ANP - price CV below 0.01 × × ANP - lower retail price CV and higher wholesale price CV ANP - higher retail margin during cartel × × × × ANP - higher retail margin during cartel [significant dummy] × × × × ANP - margin increase in cartel region but not in comparable areas × × SBDC - higher retail margin during cartel × × × × SBDC-average margin and margin CV negative correlation as cartel begins × × × SBDC-control region margin uncorr. w/ cartel region margin during cartel SBDC-margin reg. positive cartel region dummy and negative interact Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start × × × Local Corr. -average margin and margin CV local corr. insignif. after cartel start GARCH - GARCH price volatility model negative dummy × GARCH - GARCH price mean model positive dummy × × GARCH - ARIMA price model positive dummy × × × GARCH - actual price dispersion negative dummy × × × GARCH - actual price CV negative dummy × × SB - average price increase break at cartel start date SB - average price decrease break at cartel end date × SB - price CV increase break at cartel start date SB - price CV decrease break at cartel end date SB - average margin increase break at cartel start date SB - average margin decrease break at cartel end date × Note: own calculations. ANP - Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (In English, Brazilian National Agency of Petroleum, Natural Gas and Biofuels). CV - coefficient variation. SBDC - Sistema Brasileiro de Defesa da Concorrência (In English, Administrative Council for Economic Defense). SB - Structural Break. Local corr. - Local correlation. Uncorr. - Uncorrelated. Insignif. - Insignificant. Table A2 Additional cartel market estimates for selected city (Santa Maria, RS), based on alternative cartel dates Legal Cartel Dates Endogenous Cartel Dates Santa Maria - RS Santa Maria - RS Cartel Markers Gas Ethanol Gas Ethanol ANP - price CV below 0.01 ANP - lower retail price CV and higher wholesale price CV × ANP - higher retail margin during cartel × × ANP - higher retail margin during cartel [significant dummy] × × ANP - margin increase in cartel region but not in comparable areas SBDC - higher retail margin during cartel × SBDC-average margin and margin CV negative correlation as cartel begins SBDC-control region margin uncorr. w/ cartel region margin during cartel SBDC-margin reg. positive cartel region dummy and negative interact × Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start × × × × Local Corr. -average margin and margin CV local corr. insignif. after cartel start GARCH - GARCH price volatility model negative dummy GARCH - GARCH price mean model positive dummy GARCH - ARIMA price model positive dummy GARCH - actual price dispersion negative dummy × GARCH - actual price CV negative dummy Note: own calculations. ANP - Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (In English, Brazilian National Agency of Petroleum, Natural Gas and Biofuels). CV - coefficient variation. SBDC - Sistema Brasileiro de Defesa da Concorrência (In English, Administrative Council for Economic Defense). SB - Structural Break. Local corr. - Local correlation. Uncorr. - Uncorrelated. Insignif. - Insignificant. tables.

		Method
Relevant Market	Product	ANP	SBDC	Local Correlation	GARCH
Santa Maria/RS -	Gasoline
Legal cartel dates	Ethanol
Santa Maria/RS - Structural break filter cartel dates	Gasoline
Santa Maria/RS - Structural break filter cartel dates	Ethanol

Note: The bottom part of the table uses, as cartel dates, the dates identified by the structural break filter. If most markers of an economic filter in each method identified cartel results, the cell is dubbed “Detected.” If the economic filter has at least one marker in each method with cartel results, the cell is painted light gray. There are five markers in the ANP method; 4, in the SBDC method; three, in the local correlation method; and four, in the GARCH method.
Source: Own elaboration based on ^Appendix APPENDIX Table A1 Disagregated cartel marker results Belo Horizonte Caxias do Sul / RS Londrina / PR Cartel markers Gasoline Ethanol Gasoline Ethanol Diesel Gasoline Ethanol ANP - price CV below 0.01 ANP - lower retail price CV and higher wholesale price CV × × × × ANP - higher retail margin during cartel × × × ANP - higher retail margin during cartel [significant dummy] × × × ANP - margin increase in cartel region but not in comparable areas × SBDC - higher retail margin during cartel × × × SBDC-average margin and margin CV negative correlation as cartel begins × × × SBDC-control region margin uncorr. with cartel region margin during cartel SBDC-margin region positive cartel region dummy and negative interact × × × × Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start × × Local Corr. -average margin and margin CV local corr. insignif. after cartel start GARCH - GARCH price volatility model negative dummy × GARCH - GARCH price mean model positive dummy GARCH - ARIMA price model positive dummy GARCH - realized price dispersion negative dummy GARCH - realized price CV negative dummy × SB - average price decrease break at cartel end date × × SB - price CV increase break at cartel start date × SB - price CV decrease break at cartel end date × SB - average margin increase break at cartel start date × × × × SB - average margin decrease break at cartel end date × × Santa Maria - RS São Luís - MA Teresina Vitória Cartel Markers Gas Ethanol Gas Ethanol Diesel Gas Gas ANP - price CV below 0.01 × × ANP - lower retail price CV and higher wholesale price CV ANP - higher retail margin during cartel × × × × ANP - higher retail margin during cartel [significant dummy] × × × × ANP - margin increase in cartel region but not in comparable areas × × SBDC - higher retail margin during cartel × × × × SBDC-average margin and margin CV negative correlation as cartel begins × × × SBDC-control region margin uncorr. w/ cartel region margin during cartel SBDC-margin reg. positive cartel region dummy and negative interact Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start × × × Local Corr. -average margin and margin CV local corr. insignif. after cartel start GARCH - GARCH price volatility model negative dummy × GARCH - GARCH price mean model positive dummy × × GARCH - ARIMA price model positive dummy × × × GARCH - actual price dispersion negative dummy × × × GARCH - actual price CV negative dummy × × SB - average price increase break at cartel start date SB - average price decrease break at cartel end date × SB - price CV increase break at cartel start date SB - price CV decrease break at cartel end date SB - average margin increase break at cartel start date SB - average margin decrease break at cartel end date × Note: own calculations. ANP - Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (In English, Brazilian National Agency of Petroleum, Natural Gas and Biofuels). CV - coefficient variation. SBDC - Sistema Brasileiro de Defesa da Concorrência (In English, Administrative Council for Economic Defense). SB - Structural Break. Local corr. - Local correlation. Uncorr. - Uncorrelated. Insignif. - Insignificant. Table A2 Additional cartel market estimates for selected city (Santa Maria, RS), based on alternative cartel dates Legal Cartel Dates Endogenous Cartel Dates Santa Maria - RS Santa Maria - RS Cartel Markers Gas Ethanol Gas Ethanol ANP - price CV below 0.01 ANP - lower retail price CV and higher wholesale price CV × ANP - higher retail margin during cartel × × ANP - higher retail margin during cartel [significant dummy] × × ANP - margin increase in cartel region but not in comparable areas SBDC - higher retail margin during cartel × SBDC-average margin and margin CV negative correlation as cartel begins SBDC-control region margin uncorr. w/ cartel region margin during cartel SBDC-margin reg. positive cartel region dummy and negative interact × Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start × × × × Local Corr. -average margin and margin CV local corr. insignif. after cartel start GARCH - GARCH price volatility model negative dummy GARCH - GARCH price mean model positive dummy GARCH - ARIMA price model positive dummy GARCH - actual price dispersion negative dummy × GARCH - actual price CV negative dummy Note: own calculations. ANP - Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (In English, Brazilian National Agency of Petroleum, Natural Gas and Biofuels). CV - coefficient variation. SBDC - Sistema Brasileiro de Defesa da Concorrência (In English, Administrative Council for Economic Defense). SB - Structural Break. Local corr. - Local correlation. Uncorr. - Uncorrelated. Insignif. - Insignificant. tables.

	Belo Horizonte		Caxias do Sul / RS			Londrina / PR
Cartel markers	Gasoline	Ethanol	Gasoline	Ethanol	Diesel	Gasoline	Ethanol
ANP - price CV below 0.01
ANP - lower retail price CV and higher wholesale price CV	×				×	×	×
ANP - higher retail margin during cartel	×		×		×
ANP - higher retail margin during cartel [significant dummy]			×	×			×
ANP - margin increase in cartel region but not in comparable areas	×

SBDC - higher retail margin during cartel	×				×	×
SBDC-average margin and margin CV negative correlation as cartel begins	×					×	×
SBDC-control region margin uncorr. with cartel region margin during cartel
SBDC-margin region positive cartel region dummy and negative interact	×	×	×		×

Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity
Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start	×	×
Local Corr. -average margin and margin CV local corr. insignif. after cartel start

GARCH - GARCH price volatility model negative dummy	×
GARCH - GARCH price mean model positive dummy
GARCH - ARIMA price model positive dummy
GARCH - realized price dispersion negative dummy
GARCH - realized price CV negative dummy				×

SB - average price decrease break at cartel end date	×			×
SB - price CV increase break at cartel start date				×
SB - price CV decrease break at cartel end date				×
SB - average margin increase break at cartel start date	×	×	×		×
SB - average margin decrease break at cartel end date	×	×

	Santa Maria - RS		São Luís - MA			Teresina	Vitória
Cartel Markers	Gas	Ethanol	Gas	Ethanol	Diesel	Gas	Gas
ANP - price CV below 0.01			×			×
ANP - lower retail price CV and higher wholesale price CV
ANP - higher retail margin during cartel		×	×		×	×
ANP - higher retail margin during cartel [significant dummy]		×			×	×	×
ANP - margin increase in cartel region but not in comparable areas			×		×

SBDC - higher retail margin during cartel		×	×		×	×
SBDC-average margin and margin CV negative correlation as cartel begins			×	×	×
SBDC-control region margin uncorr. w/ cartel region margin during cartel
SBDC-margin reg. positive cartel region dummy and negative interact

Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity
Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start	×	×	×
Local Corr. -average margin and margin CV local corr. insignif. after cartel start

GARCH - GARCH price volatility model negative dummy							×
GARCH - GARCH price mean model positive dummy			×		×
GARCH - ARIMA price model positive dummy			×		×	×
GARCH - actual price dispersion negative dummy	×		×		×
GARCH - actual price CV negative dummy			×		×

SB - average price increase break at cartel start date
SB - average price decrease break at cartel end date			×
SB - price CV increase break at cartel start date
SB - price CV decrease break at cartel end date
SB - average margin increase break at cartel start date
SB - average margin decrease break at cartel end date			×

	Legal Cartel Dates		Endogenous Cartel Dates
	Santa Maria - RS		Santa Maria - RS
Cartel Markers	Gas	Ethanol	Gas	Ethanol
ANP - price CV below 0.01
ANP - lower retail price CV and higher wholesale price CV		×
ANP - higher retail margin during cartel		×		×
ANP - higher retail margin during cartel [significant dummy]		×		×
ANP - margin increase in cartel region but not in comparable areas

SBDC - higher retail margin during cartel		×
SBDC-average margin and margin CV negative correlation as cartel begins
SBDC-control region margin uncorr. w/ cartel region margin during cartel
SBDC-margin reg. positive cartel region dummy and negative interact			×

Local Corr. -average margin and margin CV correlation < -0.8 cartel vicinity
Local Corr. -average margin and margin CV local corr. < -0.8 at the cartel start	×	×	×	×
Local Corr. -average margin and margin CV local corr. insignif. after cartel start

GARCH - GARCH price volatility model negative dummy
GARCH - GARCH price mean model positive dummy
GARCH - ARIMA price model positive dummy
GARCH - actual price dispersion negative dummy	×
GARCH - actual price CV negative dummy

Instituto de Economia da Universidade Federal do Rio de Janeiro Avenida Pasteur, 250 sala 114, Palácio Universitário, Instituto de Economia, 22290-240 Rio de Janeiro - RJ Brasil, Tel.: 55 21 3938-5242 - Rio de Janeiro - RJ - Brazil
E-mail: rec@ie.ufrj.br

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[1] Correspondência para: Matheus Humberto Migliari Ramalho Contato: matheus.ramalho11@gmail.com