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Hard Core Cartels and Avoidance of Investigation in the Presence of an Antitrust Authority

  • Gianmaria Martini

    ()

Hard Core Cartels aim to design, being aware of the presence of an antitrust authority, market practices granting avoidance of antitrust investigations. We show, in a dynamic game, that they can reach this goal and get extra—normal profits. However, the bulk of this opportunity does not lay, here, in limiting price changes across periods (as in Harrington [2004b]), but rather in sending a signal to the authority which has a twofold effect: (1) it does make evident that cartel’s members are currently not engaged in an “excessive” degree of collusion, (2) it credibly shows that this moderate collusive activity has a persistence effect, i.e. it will be maintained also in future periods. We also show that antitrust remedies (e.g. behavioral constraints or injunction reliefs) are more powerful, in limiting the collusive activity, than fines. Last, we show that social welfare is higher if Hard Core Cartels have limited information about the type of authority (i.e. tough or accommodating) they are facing.

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File URL: http://hdl.handle.net/10446/439
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Paper provided by Department of Economics and Technology Management, University of Bergamo in its series Working Papers with number 0505.

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Date of creation: 2005
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Handle: RePEc:brh:wpaper:0505
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Web page: http://www.unibg.it/struttura/en_struttura.asp?cerca=en_dige_intro

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  1. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 651-673, Winter.
  2. Souam, Said, 2001. "Optimal antitrust policy under different regimes of fines," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 1-26, January.
  3. Bradburd, Ralph M & Over, A Mead, Jr, 1982. "Organizational Costs, "Sticky Equilibria," and Critical Levels of Concentration," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 50-58, February.
  4. Feinberg, Robert M, 1980. "Antitrust Enforcement and Subsequent Price Behavior," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 609-12, November.
  5. Salant, Stephen W, 1987. "Treble Damage Awards in Private Lawsuits for Price Fixing," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1326-36, December.
  6. Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 13-38, April.
  7. Besanko, David & Spulber, Daniel F, 1989. "Antitrust Enforcement under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 99(396), pages 408-25, June.
  8. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-40, December.
  9. Michele Grillo, 2002. "Collusion and Facilitating Practices: A New Perspective in Antitrust Analysis," European Journal of Law and Economics, Springer, vol. 14(2), pages 151-169, September.
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