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Cartel Stability with Time-dependent Detection Probabilities

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  • J. Hinloopen

    ()
    (Faculty of Economics and Econometrics, Universiteit van Amsterdam)

Abstract

To account for the illegal nature of price-fixing agreements, detection probabilities are introduced in a dynamic oligopoly. It follows that for a trigger strategy to sustain a non-cooperative collusive equilibrium as a SPNE both the discount rate and all per-period detection probabilities have to be `low enough'. Also, the domain reduces for which strictest incentive compatibility constraint is binding of the concomitant non-stationary supergame if (i) any per-period detection probability increases, (ii) prospective fine payments are increased, (iii) the period of limitation is reduced for violating antitrust laws.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-104/1.

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Date of creation: 23 Dec 2003
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Handle: RePEc:dgr:uvatin:20030104

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Web page: http://www.tinbergen.nl

Related research

Keywords: Cartel stability; trigger strategy; detection probabilities; period of limitation;

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References

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  1. Charles F. Mason & Owen R. Phillips, 2002. "In Support of Trigger Strategies: Experimental Evidence from Two-Person Noncooperative Games," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 685-716, December.
  2. Ghosal, Vivek & Gallo, Joseph, 2001. "The cyclical behavior of the Department of Justice's antitrust enforcement activity," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 27-54, January.
  3. Ross, Thomas W., 1992. "Cartel stability and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 1-13, March.
  4. Harrington, Joseph Jr., 2003. "Some implications of antitrust laws for cartel pricing," Economics Letters, Elsevier, vol. 79(3), pages 377-383, June.
  5. Motta, M. & Polo, M., 1999. "Leniency Programs and Cartel Prosecution," Economics Working Papers eco99/23, European University Institute.
  6. Verboven, Frank, 1998. "Localized Competition, Multimarket Operation, and Collusive Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 371-98, May.
  7. Joseph E. Harrington, Jr., 2003. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Computing in Economics and Finance 2003 26, Society for Computational Economics.
  8. Bryant, Peter G & Eckard, E Woodrow, Jr, 1991. "Price Fixing: The Probability of Getting Caught," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 531-36, August.
  9. Thomas VON UNGERN-STERNBERG, 1988. "Cartel Stability in Sealed Bid Second Price Auctions," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 8802, Université de Lausanne, Faculté des HEC, DEEP.
  10. Segerstrom, Paul S., 1988. "Demons and repentance," Journal of Economic Theory, Elsevier, vol. 45(1), pages 32-52, June.
  11. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  12. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
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Cited by:
  1. Jeroen Hinloopen, 2004. "The Pro-collusive Effect of Increased Cartel Detection Probabilities," Tinbergen Institute Discussion Papers 04-117/1, Tinbergen Institute.

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