Friday, May 24, 2013

Antitrust as facilitating factor for collusion

Posted by D. Daniel Sokol

Iwan Bos, Wilko Letterie, and Dries Vermeulen (all Maastricht University) analyze Antitrust as facilitating factor for collusion.

ABSTRACT: We study collusion in an infinitely repeated prisoners' dilemma when firms' discount factor is private information. If tacit collusion is not feasible, firms that are capable of sustaining high prices may still be willing and able to collude explicitly. Firms eager to collude may signal their intentions when forming the agreement is costly, but not too costly. As antitrust makes explicit collusion costly in expected terms, it may in fact function as a signaling device. We show that there always exists a cost level for which explicit collusion is viable. Moreover, our analysis suggests that antitrust enforcement is unable to fully deter collusion.

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