COMPETITION POLICY EVALUATION THROUGH DAMAGE ESTIMATION IN FUEL RETAIL CARTEL IN LONDRINA, BRAZIL

Abstract

ABSTRACT This paper estimates the fuel retailer cartel damages in the city of Londrina, Parana, part south of Brazil, using reduced and structural forms for supply and demand. Brazilian Competition Authority (CADE) documents help to characterize the ethanol and gasoline retailers involved in the collusion. The objective is to evaluate competition policy by comparing the amount of estimated damages with the amount of applied fines. This paper also adds an important result to gasoline substitution, as data shows ethanol is perceived as a perfect substitute and its price is inelastic. Results show an overcharge of 3.6% to 6.6% in the gasoline market and up to 12% in the ethanol market during collusion. Fines should consider the deterrence effect and, giving the low probability of detection, CADE’s applied fines seemed to be in line with this objective.