The Effects of Endogenous Enforcement on Strategic Uncertainty and Cartel Deterrence

Carsten Crede, Liang Lu

Research output: Working paper

Abstract

This study experimentally investigates the impact of antitrust enforcement on cartel price decisions when fines and detection probabilities depend on them. We impose expected punishments that create two payoff–equivalent collusive price equilibria, of which one features a lower riskiness of collusion. Subjects are found to behave strategically in that they choose the equilibrium with a lower
riskiness of collusion. This suggests that competition authorities can exploit the effects of such endogenous enforcement on strategic uncertainty between cartelists, i.e. a priori uncertainty about the actions of the other cartel members, to lower cartel prices. However, frequency deterrence might be reduced such that the overall welfare effects may be ambiguous.
Original languageEnglish
PublisherCentre for Behavioural and Experimental Social Science
Publication statusPublished - 2016

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