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

  • Gianmaria Martini

    (University of Bergamo)

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://econwpa.repec.org/eps/io/papers/0502/0502014.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0502014.

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Length: 56 pages
Date of creation: 23 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0502014
Note: Type of Document - pdf; pages: 56
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Saïd Souam, 1997. "Optimal Antitrust Policy Under Different Regimes of Fines," Working Papers 97-37, Centre de Recherche en Economie et Statistique.
  2. 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.
  3. Besanko, David & Spulber, Daniel F, 1989. "Antitrust Enforcement under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 99(396), pages 408-25, June.
  4. Joseph E. Harrington, Jr., 2003. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Computing in Economics and Finance 2003 26, Society for Computational Economics.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
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