The Optimal Prudential Deterrence of Price Fixing Agreements
IGIER Working Paper No. 120
19 Pages Posted: 14 May 1998
Date Written: November 1997
We analyze the optimal antitrust enforcement against collusion under asymmetric information with a continuum of types. We focus on prudential deterrence, by imposing that expected fines cannot induce losses even off the equilibrium path. Due to incentive compatibility, efficient cartels enjoy positive rents even when prosecution is costless, created through reduced fines and price cost margins. In equilibrium this distortion is lower for more efficient types, while full collusion can be tolerated for high cost cartels. Moreover, regulation with positive transfers is better than antitrust enforcement, which, however, allows to implement more efficient outcomes than price caps.
JEL Classification: D21, L4
Suggested Citation: Suggested Citation