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Cartel Pricing Dynamics in the Presence of an Antitrust Authority

  • Joseph E Harrington Jr

Price-fixing is characterized when firms are concerned about creating suspicions that a cartel has formed. Antitrust laws have a complex effect on pricing as they interact with the conditions determining the internal stability of the cartel. Dynamics are driven by two forces - the sensitivity of detection to price movements causes a cartel to gradually raise price while the sensitivity of penalties to the price level induces the cartel to lower price over time in order to maintain the stability of the cartel. While antitrust laws can lower collusive prices, they can also raise them by making it easier for firms to collude.

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Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 487.

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Date of creation: Dec 2002
Date of revision: May 2003
Handle: RePEc:jhu:papers:487
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  1. Philippe Cyrenne, 1999. "On Antitrust Enforcement and the Deterrence of Collusive Behaviour," Review of Industrial Organization, Springer, vol. 14(3), pages 257-272, May.
  2. 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.
  3. Bryant, Peter G & Eckard, E Woodrow, Jr, 1991. "Price Fixing: The Probability of Getting Caught," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 531-36, August.
  4. McCutcheon, Barbara, 1997. "Do Meetings in Smoke-Filled Rooms Facilitate Collusion?," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 330-50, April.
  5. Michele Polo, . "The Optimal Prudential Deterrence of Price Fixing Agreements," Working Papers 120, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Motta, Massimo & Polo, Michele, 2003. "Leniency programs and cartel prosecution," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 347-379, March.
  7. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  8. Harrington, Joseph Jr., 2003. "Some implications of antitrust laws for cartel pricing," Economics Letters, Elsevier, vol. 79(3), pages 377-383, June.
  9. Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Block, Michael Kent & Nold, Frederick Carl, 1981. "The Deterrent Effect of Antitrust Enforcement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 429-45, June.
  11. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
  12. Chantale LaCasse, 1995. "Bid Rigging and the Threat of Government Prosecution," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 398-417, Autumn.
  13. 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.
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