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Motivating Collusion

HKUST Business School Research Paper No. 2021-039

76 Pages Posted: 14 Nov 2021 Last revised: 5 Jan 2022

See all articles by Sangeun Ha

Sangeun Ha

Hong Kong University of Science & Technology (HKUST), HKUST School of Business and Management, Department of Finance, Students

Fangyuan Ma

Chinese University of Hong Kong (CUHK) - Department of Finance; Peking Univeristy, HSBC Business School

Alminas Zaldokas

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: January 31, 2020

Abstract

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

Ha, Sangeun and Ma, Fangyuan and Zaldokas, Alminas, Motivating Collusion (January 31, 2020). HKUST Business School Research Paper No. 2021-039, Available at SSRN: https://ssrn.com/abstract=3961851 or http://dx.doi.org/10.2139/ssrn.3961851

Sangeun Ha

Hong Kong University of Science & Technology (HKUST), HKUST School of Business and Management, Department of Finance, Students ( email )

Clear Water Bay, Kowloon
Hong Kong

Fangyuan Ma

Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Peking Univeristy, HSBC Business School ( email )

Alminas Zaldokas (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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