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The effects of endogenous enforcement on strategic uncertainty and cartel deterrence

Carsten Crede and Liang Lu

No 16-08, Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) from School of Economics, University of East Anglia, Norwich, UK.

Abstract: This study experimentally investigates the impact of antitrust enforcement on cartel price decisions when fines and detection probabilities depend on them. We impose expected punishments that create two payoff–equivalent collusive price equilibria, of which one features a lower riskiness of collusion. Subjects are found to behave strategically in that they choose the equilibrium with a lower riskiness of collusion. This suggests that competition authorities can exploit the effects of such endogenous enforcement on strategic uncertainty between cartelists, i.e. a priori uncertainty about the actions of the other cartel members, to lower cartel prices. However, frequency deterrence might be reduced such that the overall welfare effects may be ambiguous.

Keywords: antitrust; cartels; experiment; deterrence (search for similar items in EconPapers)
JEL-codes: C92 D43 L13 L41 (search for similar items in EconPapers)
Date: 2016-05-30
New Economics Papers: this item is included in nep-com, nep-exp, nep-ind and nep-law
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