Is a Cartel Just an Ordinary Prisoner's Dilemma?

Posted by D. Daniel Sokol

Christoph Engel, Max Planck Institute for Research on Collective Goods has a new paper on Is a Cartel Just an Ordinary Prisoner's Dilemma?

ABSTRACT: Ever since the heyday of the Chicago School, antitrust intervention has been under attack. One of the stronger counter-arguments is behavioural. Models predicting the absence of a social problem rely on the assumption that all agents are prevoyant maximisers of profit. Many experiments have shown that subjects are more likely to collude. However, other experimental findings point to behavioural forces mitigating the social detriment. Subjects collude less if they know they inflict harm on others. And they cooperate more if the structurally identical game is framed neutrally. Arguably this setting does not give them a chance to activate their world knowledge on the undesirability of collusion. The experiment to be presented puts these two forces to the direct test: externalities, and normativity. The main finding is this: only normativity helps. Society cannot dispense of antitrust intervention.