Optimal Cartel Pricing in the Presence of an Antitrust Authority

Johns Hopkins Department of Economics Working Paper No. 460

43 Pages Posted: 22 Aug 2002

See all articles by Joseph E. Harrington

Joseph E. Harrington

Johns Hopkins University - Department of Economics

Date Written: July 2002

Abstract

Price dynamics are characterized when a price-fixing cartel is concerned about creating suspicions of the presence of a cartel. A dynamical extension of static models yields the counterfactual prediction that the cartel initially raises price and then gradually lowers it. An alternative specification generates a more plausible result that the cartel gradually raises price. For that specification, the long-run cartel price is found to be decreasing in the damage multiple but is independent of the level of fixed fines. A more stringent standard for calculating damages is shown to induce the cartel to price higher.

JEL Classification: L1, L4

Suggested Citation

Harrington, Joseph E., Optimal Cartel Pricing in the Presence of an Antitrust Authority (July 2002). Johns Hopkins Department of Economics Working Paper No. 460, Available at SSRN: https://ssrn.com/abstract=322121 or http://dx.doi.org/10.2139/ssrn.322121

Joseph E. Harrington (Contact Author)

Johns Hopkins University - Department of Economics ( email )

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