Cartel formation and detection: the role of information costs and disclosure

Firms that self-report cartels risk having their information exposed. If the costs associated with these risks are large then it will have a “chilling effect" on self-reporting. This effect can sustain cartels even without trigger strategies in a Bertrand duopoly. Thus, we show that disclosure rules, which determine how much information from AA proceedings is revealed publicly or to private plaintiffs, must be structured carefully to reduce this chilling effect. Further, if firms can hide information, they can strategically utilize this to sustain collusion. Accordingly, policies that limit information disclosure can fight cartels even though they make it harder for private plaintiffs to sue. Thus, disclosure rules must be structured in conjunction with self-reporting policies.