Tuesday, May 31, 2022
We investigate how colluding asymmetric firms divide markets. We provide conditions under which, contrary to conventional wisdom, the efficient firm gains more from collusion, while the inefficient firm is more tempted to defect. Both anti-trust investigations and leniency policies have the intended effect of deterring some cartels, but also have unintended consequences for surviving cartels. The introduction of leniency moves surviving cartels towards a more inefficient distribution of output, worsening allocative and productive efficiency. Traditional investigation improves the efficiency of surviving symmetric cartels but may worsen the efficiency of more asymmetric surviving cartels.