Douglas T. Breeden - Duke University's Fuqua School of Business

Leslie Marx Associate Professor of Economics
Research Focus: Anti-competitive behavior; contracting problems
Courses: Managerial Economics (The Duke MBA—Cross Continent);
Game Theory (PhD)
As an associate professor of economics, Leslie Marx focuses
her research on anti-competitive behavior and vertical
contracting between manufacturers and retailers. Her
research results serve as guidance for the government
and others on how to prevent, detect, and protect
against anti-competitive practices. “I study bad behavior
with the goal of learning when these behaviors should be a
concern or not, and to help design institutions that are
resistant to bad behavior,” says
Marx. Marx and other economists
play an important role in advising
the Department of Justice and
Federal Trade Commission, among
others, on topics related to the functioning
of the marketplace.
One of Marx’s primary interests is
the study of collusion. Collusion
occurs when competitors cooperate
in secret in order to try to circumvent
the normal functioning of the marketplace.
Marx recently authored the
chapter “Lessons for Competition
Policy from the Vitamins Cartel,” in the
book The Political Economy of Antitrust.
In their chapter Marx and co-authors,
William Kovacic, Robert C. Marshall,
and Matthew E. Raiff, examined collusion in the vitamin
industry during the 1990s, a period of widespread collusion
among vitamin manufacturers with the intent to maximize
prices for vitamins.
Marx and her co-authors were most interested in the sales
practices of several vitamin manufacturers that were investigated
by the federal government for price fixing and agreed
to discontinue their anti-competitive agreements. The period
immediately after a cartel is broken up, Marx points out, is a
prime opportunity for companies to implicitly continue the
agreements and practices they had ostensibly ended, without
having any actual agreement to do so.
Through their analysis of the vitamin industry, Marx
and her collaborators demonstrated that the number of
firms operating in a particular marketplace is a strong
26 exchange
predictor of whether or not they will continue to act in
tacit collusion after their scheme has been broken apart
by regulators. Fewer competitors makes it easier for
those companies to coordinate efforts to continue collusive
behaviors. The team found that in cases where there
were three or more competitors in a marketplace, prices
dropped to pre-conspiracy pricing rather quickly after the
end of collusive agreements. However, in markets with
fewer than three competitors, the firms often continued
to charge elevated prices, even after pledging to end
their collusive behaviors.
Their findings indicate that regulators should be
concerned about the effects of proposed mergers that
would reduce the number of competitors in a marketplace
to two.
In 2005–2006, Marx served a one-year appointment
as the chief economist of the Federal Communications
Commission. As chief economist, she worked at the
intersection of research and practice on a daily basis,
and serving as a liaison between the economists and
commissioners, helping to put economic research into
context for the commissioners. “Many of the situations
facing the FCC are general economic issues that are
applied to study telecom problems,” said Marx of her
work on topics including auction design, à la carte pricing
of cable television channels, and net neutrality.
Back at Duke, Marx is currently studying the mechanisms
of collusion at sealed-bid auctions, in which all of
the bidding parties determine their bids in advance and
submit them in a confidential manner. These auctions
remain open to many types of anti-competitive behavior,
she notes. “One bidder could go to another and say they
want to work together, and plan their bids together in
advance,” she says, “but neither bidder ever knows for sure
whether the other one kept their end of the agreement, or
bid something different.” Cases of collusion at sealed-bid
auctions should be detectable through careful review of
the bids, Marx says. Once collusion is detected, economists
and others can work with agencies that host large
auctions to create methods for detecting and preventing
collusive behaviors.
Marx and other academic economists play an important
role by helping to supplement the government’s efforts to
assess behaviors in the marketplace and recommend
actions that may help to curb such practices.