76 Pages Posted: 14 Nov 2021 Last revised: 5 Jan 2022
Date Written: January 31, 2020
We examine how executive compensation can be designed to motivate product market collusion. We look at the 2013 decision to close several regional offices of the Department of Justice, which lowered antitrust enforcement for firms located near these closed offices. We argue that this made collusion more appealing to the shareholders, and find that these firms increased the sensitivity of executive pay to local rivals' performance, consistent with rewarding the managers for colluding with them. The affected CEOs were also granted more equity compensation, which provides long-term incentives that could foster collusive arrangements.
Keywords: Product Market Collusion, Corporate Governance, Managerial Compensation
JEL Classification: G34, G38, L22
Suggested Citation: Suggested Citation