Collusion in the Presence of Antitrust Prosecution: Experimental Evidence

53 Pages Posted: 13 Dec 2022

See all articles by Heiko A. Gerlach

Heiko A. Gerlach

University of Queensland - School of Economics

Date Written: November 21, 2022

Abstract

We conduct an experimental study of cartel behaviour in the presence of an active competition authority that may respond to suspicious pricing behaviour by firms. We find that subjects are doing very well in developing strategies to avoid antitrust detection. We observe gradual price increases and staggered pricing conforming with theory. Surprisingly, the presence of potential antitrust prosecution tends to improve the internal functioning of cartels. Cartel stability is significantly higher and punishment weaker in the treatments with active cartel detection relative to the treatment where cartels are legal. We ascribe these results to the esprit de corps effect induced by cartel prosecution. Notwithstanding, ex ante expected market prices are lower with antitrust prosecution strategies due to a combination of lower cartel formation rates and lower avoidance pricing.

Keywords: Collusion Experiment, Antitrust Cartel Enforcement, Repeated Games, Esprit de Corps

JEL Classification: C92, L13, L41

Suggested Citation

Gerlach, Heiko A. and Li, Junqian, Collusion in the Presence of Antitrust Prosecution: Experimental Evidence (November 21, 2022). Available at SSRN: https://ssrn.com/abstract=4283168 or http://dx.doi.org/10.2139/ssrn.4283168

Heiko A. Gerlach (Contact Author)

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

No contact information is available for Junqian Li

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