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How do antitrust regimes impact on cartel formation and managers’ labor market? An experiment

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  • Fonseca, Miguel A.
  • Gonçalves, Ricardo
  • Pinho, Joana
  • Tabacco, Giovanni A.

Abstract

We explore the impacts of different antitrust regimes on managers’ labor contracts, when shareholders are intent on their managers engaging in price fixing activities. We compare legal regimes that fine firms to regimes that prosecute managers. We build a theoretical model, which we take to the laboratory. We observe contract choices of shareholders for a given legal regime, as well as the probability of managers forming explicit cartels and coordinating on prices in a repeated Bertrand oligopoly, taking contract and legal regime as given. Our results suggest that there is less collusion when the legal regime prosecutes managers. High-powered contracts do not incentivize cartel formation or price coordination effectively, irrespective of legal regime. Nevertheless, high-powered contracts were most frequently chosen by shareholders, often with collusive intents.

Suggested Citation

  • Fonseca, Miguel A. & Gonçalves, Ricardo & Pinho, Joana & Tabacco, Giovanni A., 2022. "How do antitrust regimes impact on cartel formation and managers’ labor market? An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 643-662.
    • Handle: RePEc:eee:jeborg:v:204:y:2022:i:c:p:643-662
    DOI: 10.1016/j.jebo.2022.10.031
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    More about this item

    Keywords

    Cartel formation; Antitrust; Managerial compensation; Experiment;
    All these keywords.

    JEL classification:

    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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