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Motivating Collusion

Sangeun Ha (), Fangyuan Ma () and Alminas Žaldokas ()
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Sangeun Ha: The Hong Kong University of Science and Technology
Fangyuan Ma: Peking University HSBC Business School
Alminas Žaldokas: The Hong Kong University of Science and Technology

No 202108, HKUST CEP Working Papers Series from HKUST Center for Economic Policy

Abstract: We examine how executive compensation can be designed to motivate product market collusion. We look at the 2013 decision to close several regional offices of the Department of Justice, which lowered antitrust enforcement for firms located near these closed offices. We argue that this made collusion more appealing to the shareholders, and find that these firms increased the sensitivity of executive pay to local rivals' performance, consistent with rewarding the managers for colluding with them. The affected CEOs were also granted more equity compensation, which provides long-term incentives that could foster collusive arrangements.

Keywords: Product Market Collusion; Corporate Governance; Managerial Compensation (search for similar items in EconPapers)
JEL-codes: G34 G38 L22 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-bec, nep-com and nep-reg
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