Hub-and-Spoke Cartels: Theory and Evidence from the Grocery Industry

Abstract

Numerous recently uncovered cartels operated along the supply chain, with firms at one end facilitating collusion at the other—hub-and-spoke arrangements. These cartels are hard to rationalize because they induce double marginalization and higher costs. We examine Canada’s alleged bread cartel and provide the first comprehensive analysis of hub-and-spoke collusion. Using court documents and pricing data, we make three contributions: (i) we show that collusion was effective, increasing inflation by about 50 percent; (ii) we provide evidence that collusion existed at both ends of the supply chain; and (iii) we develop a model explaining why this form of collusion arose. (JEL E31, K21, L12, L14, L22, L42, L81)