Collusion and Innovation: The Case of LCD Cartel, 2001–2006

Résumé

Collusion is difficult in innovative industries because the prospect of investments to achieve superior competitiveness weakens the incentive to cooperate with competitors. Nevertheless, high-profile cartel cases emerged in the liquid crystal display (LCD) panel industry in 2001–2006. We propose a tractable dynamic-oligopoly model of collusion with endogenous innovation to study the interactions between incentives to collude and innovate in this cartel. Our preliminary estimates suggest: (i) the LCD cartel achieved monopoly price levels in the first few years; (ii) the incentive to innovate would have been higher but for the cartel.