Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, May 2, 2008

Cartels, Agency Costs, and Finding Virtue in Faithless Agents

Posted by D. Daniel Sokol

Cleslie_web Christopher Leslie of Chicago Kent College of Law provides an interest theory in Cartels, Agency Costs, and Finding Virtue in Faithless Agents.

ABSTRACT: Although price-fixing conspiracies are inherently unstable, many cartels manage to endure, often for long periods. Many successful cartels have hierarchical structures made up of high-level executives (principals) and lower-level managers (agents). For these cartels, agency cost theory could provide some insights as to how to destabilize them from within. Agency costs exist when a faithless agent pursues her own interests instead of those of the principal. Although agency costs are generally considered inefficient, when the principal’s goals are undesirable, the acts of a faithless agent can be beneficial. Because one traditional approach to reducing agency costs is to align the interests of the principal and agent, this Article argues that antitrust policy should maximize agency costs in cartels by decoupling these interests through several interrelated strategies. First, antitrust law should increase the severity and probability of criminal punishment of individuals who participate in price fixing. Second, antitrust law should reward individuals who expose cartel activity by providing them immunity from all criminal and civil liability and by paying antitrust bounties to such faithless agents. Finally, antitrust law should be structured so that employees of a cartel firm will not trust their employers to protect them should the cartel be exposed. This Article discusses how antitrust law can perform this decoupling function while minimizing any negative consequences of creating distrust within firms.

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