What qualifies as a cartel?

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Question: 

Hi, I am a nursing recruiter and am experiencing what I think might qualify as a cartel - I was curious of your opinion. Travel Nursing is a large business where hospitals pay recruiting firms to staff RNs by contract. The bill rates with the hospitals are negotiated in multiyear contracts, whereas the nurses negotiate their pay with the recruiter company per contract (typically 3 months at a time).

This has been quite an efficient market for many years until recently when the nurses started to compare pay for contracts on Facebook groups. Currently a group called Gypsy Travel RNs was created by an ex-nurse to help travel RNs find travel jobs - it has over 20,000 members.

Part of the information now being shared by the RNs is their pay package details quoted to them by the recruiter before accepting an assignment. They will compare what others are being paid and seek the opinion of any person in the group who makes an effort to respond, which is usually responded with "pay too low!"

Every person in this system acts on their own knowledge of the market. However, having hundreds of other RNs injecting their own views of an offer (accurate or not) seems to be artificially inflating the RNs side of the market, which drives up the costs for the hospital side.

It could be argued this is what other consumers do for other large purchases that might be negotiated. However, there are no established Facebook groups with 20,000+ home buyers all currently active at the same time in the market comparing offered prices.

These types of groups keep growing - would you consider this type of system a cartel? It this even legal?

Answer: 

Let me first state that I cannot answer the legal part of the question. Antitrust litigations often involve economists to show empirical evidence of abuse of market power and to determine the extent of damage the cartel has caused to consumers and other firms. That is, the role of economists is not to argue whether a certain behavior is legal or not but rather to examine whether it has consequential market effects. I will focus this response on how economists view wage rate information sharing.

Economists view transparency about prices as a good thing because it contributes to making markets more efficient. Indeed, that all buyers and sellers are informed about prices is one of the main assumptions of the perfect competition model. More information about prices allows for an efficient market because it allows buyers and sellers to find the best prices for the goods or services they buy or sell. In some markets where information about prices is not readily available, legislators have made it a legal obligation for firms to share information about prices. The Livestock Mandatory Reporting Act requires large packers and importers to report livestock purchases, which then the USDA summarizes and shares. One goal of that legislation was to prevent meat packers from concealing market manipulation by keeping prices secret.

In the specific case of nurses comparing their salaries, it does look to me that such Facebook groups contribute to making the market for traveling nurses more efficient. Indeed, it would be difficult for a single nurse to go from one agency to another to compare pay at each firm. The Facebook group allows nurses to learn about their market value at a lower cost and, hence, make better decisions about which contract to accept. Information sharing leads to an increase in salary only if the market for traveling nurses was not efficient before the creation of such a group. If that was indeed the case, firms and hospital must now pay more for traveling nurses.

I did a brief search in the economic literature and did not find anything specific to the market impacts of salary information sharing. However, there are plenty of claims and casual evidence on the web that sharing information about pay rates contributes to reducing the pay gap between men and women.

Overall, to an economist, sharing information about salaries contributes to a more efficient market. This is with the caveat that the information shared in such groups is truthful, which raises other issues.

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Associate Professor
Last updated on October 9, 2018