Antitrust Enforcement under Asymmetric Information
Optimal antitrust policy toward collusion to fix prices is examined in an asymmetric information setting. The antitrust authority does not know cartel costs and so cannot distinguish between a high-cost competitive industry and a low-cost cartel. The problem differs from principal-agent models since firms can choose competitive or collusive behavior. With costly enforcement, the authority is shown to commit itself to a schedule of probabilities of bringing suit that depends on the observed market price. Collusive firms moderate markups to reduce the risk of being prosecuted. Copyright 1989 by Royal Economic Society.
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Volume (Year): 99 (1989)
Issue (Month): 396 (June)
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