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Antitrust Agencies And Hard-Core Cartels: A Game Theoretic Perspective

Author

Listed:
  • Prof. Xiaowei Cai Ph.D

    (California Polytechnic State University Faculty of Applied Economics San Luis Obispo CA, U.S.A.)

Abstract

This article studies the strategic interactions between cartelists and the antitrust agency in two theoretical game settings. In the simultaneous game, the numerical results show that it becomes harder for the firms to sustain collusion, but easier for the antitrust agency to detect collusion as the damage multiplier and the effectiveness of leniency program increase. In addition, inelastic demand can also lead to higher detection probability. Therefore, the cartel's collusive price can be reduced when the antitrust agency increases the damage multiplier, and/or implements the leniency program more efficiently. In the sequential game where the cartel decides its collusive price in the first stage, the equilibrium collusive price is higher, and antitrust agency's budget allocation on cartel detection is smaller than in the simultaneous game. And the probability of detection is 5% higher in the sequential game.

Suggested Citation

  • Prof. Xiaowei Cai Ph.D, 2011. "Antitrust Agencies And Hard-Core Cartels: A Game Theoretic Perspective," Revista Tinerilor Economisti (The Young Economists Journal), University of Craiova, Faculty of Economics and Business Administration, vol. 1(17), pages 150-161, November.
  • Handle: RePEc:aio:rteyej:v:1:y:2011:i:17:p:150-161
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    File URL: http://feaa.ucv.ro/RTE/017-20.pdf
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    References listed on IDEAS

    as
    1. John M. Connor, 2004. "Global Antitrust Prosecutions of Modern International Cartels," Journal of Industry, Competition and Trade, Springer, pages 239-267.
    2. Kyle Bagwell & Robert Staiger, 1997. "Collusion Over the Business Cycle," RAND Journal of Economics, The RAND Corporation, pages 82-106.
    3. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, pages 1-26.
    4. Simon J. Evenett & Margaret C. Levenstein & Valerie Y. Suslow, 2001. "International Cartel Enforcement: Lessons from the 1990s," The World Economy, Wiley Blackwell, vol. 24(9), pages 1221-1245, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Cartel; Simultaneous Game; Sequential Game; Antitrust; Detection;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L00 - Industrial Organization - - General - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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