optimal leniency and the organization design of group crime abstract we study a simple law enforcement model where the organizational structure of a criminal group is endogenous and determined jointly with the amnesty granted to whistleblowers we allow criminals to choose between a horizontal partnership and a vertical hierarchical organization structure and we study how this choice affects the optimal leniency granted by a benevolent legislator whose aim is to minimize crime we show that the optimal amnesty with an endogenous organizational choice is less lenient than that granted when the policy targets vertical organizations only in the equilibrium partnerships coexist with vertical organizations

informational asymmetries strategic behavior and industrial organization one of the most active and exciting areas of economic research over the last several years has been the use of noncooperative games of incomplete information to model industrial competition this work has yielded not only a remarkable number of papers but also several new insights on and explanations of fundamentally important issues the purpose of this paper is to attempt an appreciation and evaluation of this work because most of our individual and joint work since about 1979 has been in this mode it will come as no surprise that we are proponents of this line of research however there are several questions and potential problems that we see as arising in connection with this methodology and we will attempt to address these first a disclaimer we are not attempting a survey of the applications of asymmetric information games aig to industrial organization although we will refer in a highly selective fashion to a number of prominent strands in this literature in particular where any references are provided at all they are typically only to the earliest contributions to a subject even more we do not deal with work in which informational asymmetries are important but the analysis is not game theoretic for example search and price dispersion or the early work on the lemons problem and on moral hazard and adverse selection in insurance markets or with game theoretic treatments that assume complete information i aig methods and applications

nash implementation a complete characterization the authors extend e maskin s results on nash implementation first they establish a condition that is both necessary and sufficient for nash implementability if there are three or more agents the case covered by maskin s sufficiency result second and more important they examine the two agent case for which there existed no general sufficiency results the two agent model is the leading case for applications to contracting and bargaining for this case too they establish a condition that is both necessary and sufficient the authors use their theorems to derive simpler sufficiency conditions that are applicable in a wide variety of economic environments copyright 1990 by the econometric society

switching regression models with imperfect sample separation information with an application on cartel stability an exogenous switching regression model with imperfect reginme classificationi information is specified and applied to a study of cartel stability an efficient estimation method is proposed which takes this imperfect information into account the consequences of misclassification are analyzed the direction of the least squares bias is derived an optimal regime classification rule is obtained and compared theoretically and empirically with other classification rules we then examine the joint executive committee a railroad cartel in the 1880 s the econometric evidence indicates that reversions to noncooperative behavior did occur for the firms in our sample and these reversions involve a significant decrease in market price this article is concerned with the possibility of estimating a switching regression model and its application to a study on cartel stability the switching regression model is the exogenous switching model proposed by quandt 24 which generalized a problem of mixture distributions day 4 the sample in this model is generated from distinct regression equations or regimes for each time period if the investigator has a priori information on how the sample is partitioned into the underlying regimes it is a switching regression model with known sample separation otherwise it is a model with unknown sample separation estimation of these latter models has been considered by quandt 24 goldfeld and quandt 8 and kiefer 14 16 among others a switching regression model is appropriate for the study of cartel behavior when there are price wars as firms will revert from cooperative to noncooperative behavior and so the industry supply function shifts occasionally this model will allow us to exploit the fact that there will be periodic stochastic switches or reversions between cooperative and noncooperative conduct in order to identify collusive episodes

rules communication and collusion narrative evidence from the sugar institute case detailed notes on weekly meetings of the sugar refining cartel show how communication helps firms collude and so highlight the deficiencies in the current formal theory of collusion the sugar institute did not fix prices or output prices were increased by homogenizing business practices to make price cutting more transparent meetings were used to interpret and adapt the agreement coordinate on jointly profitable actions ensure unilateral actions were not misconstrued as cheating and determine whether cheating had occurred in contrast to established theories cheating did occur but sparked only limited retaliation partly due to the contractual relations with selling agents jel l13 l41 this paper reexamines the cartel problem by studying the private discussions within one cartel while we find much that is in accord with george j stigler s 1964 basic insight that firms would structure an agreement conscious of their later incentive to cheat on it we also uncover puzzles for established theory and identify elements that a richer theory should encompass especially regarding the role of communication in collusion our window into the inner workings of a cartel is a remarkable series of notes on the weekly meetings of the sugar institute this trade association was formed in december 1927 in the wake of several years of falling margins and excess capacity by 14 firms comprising nearly all the cane sugar refining capacity in the united states it operated until 1936 when the supreme court ruled its practices illegal among the top executives in regular attendance at the meetings was louis v place vice president of mccahan a midsize refinery in philadelphia place who was in charge of all activities of the company except production and raw sugar purchases wrote over 500 pages of single spaced detailed

legal principles in antitrust enforcement we study antitrust enforcement to channel price fixing incentives of cartels through setting fine schedules and detection levels fines obey legal principles punishments fit the crime proportionality bankruptcy considerations and minimum fines bankruptcy considerations limit maximum fines ensure abnormal cartel profits and impose a challenge for optimal antitrust enforcement we derive the fine schedule and detection level that are constrained optimal under legal principles and sustainability of cartel prices this fine schedule lies below the maximum fine makes collusion on lower prices more attractive than on higher prices and hence relates to marginal deterrence literature this article is protected by copyright all rights reserved

collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

on the design of leniency programs abstractleniency programs contribute to destabilizing collusion but can also be abused and generate perverse effects this paper develops a simple model capturing this trade off which we use to relate the optimal leniency policy the carrot to the effectiveness of investigations the stick we show that it is always desirable to offer some leniency before an investigation is launched it is also optimal to offer some leniency once an investigation is underway when investigations are unlikely to succeed in uncovering cartels absent self reporting our analysis also confirms the usefulness of restricting leniency to the first informant only in contrast it does not support prohibiting leniency for repeat offenders

an expository note on individual risk without aggregate uncertainty abstract in economies where agents bear some risk the analysis would often be facilitated by the assumption that the risks are i i d and disappear in the aggregate a formal appeal to the law of large numbers requires the consideration of a sequence of finite economies in an economy with a continuum of agents there are countable families of sets for which it is impossible for a law of large numbers to be valid with countably many agents and a finitely additive measure independence is compatible with the law of large numbers

international antitrust enforcement and multimarket contact this article analyzes cartel formation and international antitrust enforcement when multinational firms operate in several jurisdictions with local antitrust authorities we are concerned with how the sustainability of collusion in one local market is affected by the existence of collusion in other markets when they are linked by a negative demand relationship the interdependence of cartel stability across markets leads to potential externalities in antitrust enforcement across jurisdictions local antitrust enforcement equilibrium enforcement may exhibit a nonmonotonicity in the degree of market integration we compare it with globally optimal antitrust enforcement policy and discuss the role of international antitrust coordination

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

fines leniency and rewards in antitrust this article reports results from an experiment studying how fines leniency and rewards for whistleblowers affect cartel formation and prices antitrust without leniency reduces cartel formation but increases cartel prices subjects use costly fines as punishments leniency improves antitrust by strengthening deterrence but stabilizes surviving cartels subjects appear to anticipate the lower postconviction prices after reports leniency with rewards prices fall at the competitive level overall our results suggest a strong cartel deterrence potential for well run leniency and reward schemes these findings may also be relevant for similar white collar organized crimes such as corruption and fraud

theories of cartel stability and the joint executive committee this article reexamines the experience of the joint executive committee an 1880s railroad cartel to assess the applicability of the green and porter 1984 and rotemberg and saloner 1986 theories of price wars after discussing necessary modifications to the theories i estimate a number of dynamic models to explore the causes of price wars the cyclical nature of pricing and the possibility that secret price cuts may have been given the estimates provide some support for the predictions of the first theory

a general analysis of the output effect under third degree price discrimination ever since pigou s i929 classic work economists have been in widespread agreement that any theoretical analysis of the problems of price discrimination must address itself to the question of whether total output is greater or less in simple monopoly than it is in third degree price discrimination more than 50 years ago joan robinson i933 advanced the local adjusted concavity criterion to answer this question robinson considered a monopoly selling in two sub markets and advanced two fundamental propositions a if the more elastic demand curve is concave and the less elastic curve is a straight line or is convex then the total output will be greater under discrimination than under simple monopoly p i93 b if both curves are strictly concave or convex output under discrimination will be greater less than the simple monopoly output according to whether the adjusted concavity is smaller for the more less elastic demand curve p

promotion turnover and preemptive wage offers this paper examines the strategic promotion and wage decisions of employers when employees may be more valuable to competing firms competing employers must incur a cost to learn the quality of their match with a manager promotion signals that workers are potentially valuable managers in other firms and so can lead to turnover to preempt competition for a manager an employer may offer a wage high enough to discourage competitors from acquiring information and bidding up the wage further or hiring the worker away this transfers wages from good workers to bad more costly information acquisition yields greater expected lifetime wages copyright 1993 by american economic association

remediation and self reporting in optimal law enforcement abstract many environmental laws encourage firms to self report their violations to government regulators rather than subject themselves to probabilistic enforcement this paper studies self reporting enforcement regimes when there are ex post benefits of remediation or clean up remediation benefits are shown to impart two advantages to the use of self reporting beyond those identified elsewhere firstly whereas non reporting firms only engage in costly clean up when they are caught by an enforcement authority self reporting firms always engage in efficient remediation secondly with self reporting the government can costlessly impose stiffer non reporter penalties that reduce the government enforcement effort required to achieve a given level of violation deterrence

third degree price discrimination under economies of scale there has long been a controversy in economics about whether or not a firm with monopoly power should be allowed to exploit its monopoly power by engaging in third degree price discrimination the effect of third degree price discrimination on welfare is two fold 1 output under price discrimination is misallocated because different groups are charged different prices but 2 if total output is different under price discrimination than under uniform pricing this will also affect welfare 2 schmalensee 8 varian 11 12 and schwartz 9 have shown that price discrimination must decrease welfare if output under price discrimination is the same or less than output under uniform pricing this fundamental result is quite robust and holds regardless of the number of sub markets or the behavior of marginal cost rising constant or falling it also holds even if the sub market demands are interdependent a necessary but not sufficient condition for price discrimination to be beneficial is that it increase total output perhaps the most common situation in which price discrimination will be beneficial is the case where only one sub market is served under uniform pricing but two or more sub markets are served under price discrimination in this case hausman and mackie mason 3 have pointed out that price discrimination will result in a pareto welfare improvement if marginal cost is constant or falling even when price discrimination does not open up new markets hausman and mackie mason 3 and nahata ostaszewski and sahoo 5 have shown that price discrimination can result in a pareto improvement by lowering prices in all sub markets hausman and mackie mason 3 257 argue that price discrimination is most likely to be beneficial when economies of scale are present 3

do meetings in smoke filled rooms facilitate collusion the sherman act prohibits firms from discussing prices in meetings traditional thought suggests that this prohibition makes it harder for firms to collude and economists have concluded that the sherman act operates in the public interest i provide an alternative explanation for the act that also accounts for the small sanctions chosen by the legislature when firms interact in a dynamic environment in which the law helps them to prevent renegotiation the firms may benefit from the law that makes it costly but not very costly to meet to discuss prices the sherman act may help firms to collude

corporate leniency programs when firms have private information the push of prosecution and the pull of pre emption a corporate leniency program provides relief from government penalties to the first member of a cartel to come forward and cooperate with the authorities this study explores the incentives to apply for leniency when each cartel member has private information as to the likelihood that the competition authority will be able to convict them without a cooperating firm a firm may apply for leniency because it fears being convicted prosecution effect or because it fears another firm will apply pre emption effect policies by the competition authority to magnify concerns about pre emption and thereby induce greater use of the leniency program are also explored

are inefficient entrepreneurs driven out of the market this paper challenges the widespread belief that competitive markets favor entrepreneurs who operate efficient technologies in the context of a dynamically incomplete markets model i show that ceteris paribus entrepreneurs operating efficient technologies can be driven out of a competitive market by entrepreneurs operating inefficient technologies

commodity market dynamics and the joint executive committee 1880 1886 using weekly spot and future commodity prices in chicago and new york we construct expected transportation rates for grain between these two cities expected inventory levels in new york and realized errors in the expectations of such variables we incorporate these exogenous commodity market dynamics into porter s 1983 structural modeling of the joint executive committee railroad cartel as in porter we model marginal cost as a parametric function of instrumented output among other factors unlike porter we model pricing over marginal cost as a nonparametric function of a set of variables which include expectations of deterministic demand cycles and cartel stability we estimate the pricing and demand equation simultaneously and semiparametrically our estimated weekly markups during periods of cartel stability are shown to reflect optimal collusive pricing over deterministic business cycles as modeled in haltiwanger and harrington 1991 periods of cartel instability are proven to be trigger

testing static oligopoly models conduct and cost in the sugar industry 1890 1914 we explore the widespread methodology of using demand information to infer market conduct and unobserved cost components under the hypothesis of static oligopoly behavior direct measures of marginal cost and conduct indicating small market power serve as benchmarks the more competitive models yield better cost estimates the best cost estimates occur when conduct is estimated as a free parameter which in turn only slightly underestimates our direct measure it also tracks the decline in market power accompanying the industry s structural changes the methodology is largely validated although partial cost information can improve its predictive power conclusions are robust to demand function

an empirical model of mark ups in a quality differentiated export market abstract this paper develops an empirical model to allow for imperfect competition in the market for traded goods a simultaneous equation model incorporating the demand for and supply of taiwanese footwear exports to the united states is specified and estimated the model allows the identification of two separate sources of mark ups in export prices the first comes from the u s imposed quantitative restriction on these exports the second comes from imperfect competition in the international market for these exports the results suggest competitive behavior by taiwanese footwear exporters the quantitative restriction resulted in a 16 9 percent mark up of prices over marginal cost

the effects of horizontal mergers on competition the case of the northern securities company several recent articles have studied the competitive effects of horizontal mergers by examining rival firms stock price reactions to the merger announcement and subsequent antitrust challenge these articles have consistently failed to find any evidence of anticompetitive effects this article considers two alternative explanations for the previous findings and it sheds some new light on the issue by presenting a case study of the merger that resulted in the formation of the northern securities company in 1901

global cartels leniency programs and international antitrust cooperation in this paper we analyze cartel formation and self reporting incentives when firms operate in several geographical markets and face antitrust enforcement in different jurisdictions we are concerned with the effectiveness of leniency programs and the benefits of international antitrust cooperation between agencies when international antitrust prosecution is uncoordinated multi market contact allows firms to reduce the amount of self reporting in equilibrium and sustain cartels more effectively we then discuss the effects of information sharing among antitrust authorities as a function of how much and which type of information is exchanged we show that extensive information sharing might have an adverse effect on self reporting by cartel members

an empirical investigation of private label supply by national label producers private labels pls are ubiquitous in several categories including groceries apparel and appliances however existing empirical work has not examined the differential impact of various upstream supply arrangements for pl products or the strategic motives for pl supply to do so requires one to model the interaction between private and national label nl products both upstream and downstream while accounting for strategic behavior on the part of manufacturers and retailers and retaining essential differences between nl and pl products we build a model that satisfies these requirements and lets us answer our two research questions first can an nl firm profit from being an outsourced pl supplier second what are the upstream and downstream impacts of different pl supply arrangements we answer these questions by modeling private labels as homogenous products at wholesale but as differentiated products at retail in contrast national label products are differentiated at both wholesale and retail levels using structural model estimates for fluid milk in a major metropolitan area we conduct three counterfactual experiments we find that both nl producers and retailers profit from adding private labels we also find that a vertically integrated supply of pl leads to lower prices for end consumers

multi market collusion with demand linkages and antitrust enforcement this paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand related markets we show that cartel prosecution can have a knock on effect bringing down a cartel in one market reduces profits and cartel stability and leads to the break up of the cartel in the adjacent market cartel prosecution can also have a waterbed effect disrupting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets we discuss the impact of dynamic cartel formation on consumer surplus explore antitrust spillovers the optimal scope of antitrust interventions and cartel formation with local firms

denying leniency to cartel instigators costs and benefits abstract a large number of countries have introduced successful leniency programs into their competition law enforcement to encourage colluding firms to come forward with evidence that will help detect cartels and punish price fixers this paper studies a feature of some of these programs that has received relatively little attention in the literature the inclusion of no immunity for instigators clauses niics these provisions deny leniency benefits to parties that instigate cartel behavior or function as cartel ringleaders our results show that niics can lead to increased or decreased levels of cartel conduct by removing the instigator s benefit from cooperating with the authorities a niic undoes some of the destabilizing benefit the leniency program was intended to generate and thereby furthers cartel stability on the other hand the instigator faces an asymmetrically severe punishment under a niic and this can reduce the incentive to instigate in the first place

price discrimination adjusted concavity and output changes under conditions of constant elasticity the economic consequences of third degree price discrimination have been extensively investigated beginning with joan robinson s classic discussion in the economics of imperfect competition a focal point has been the analysis of the effects of price discrimination on output considerable discussion in the literature has been devoted to the case of linear demand the most recent example of which is schmalensee i98i as has been well known since the early i9oos in this case discrimination does not change output under conditions of non linear demand the effect of third degree price discrimination is much less certain and far more complicated despite increasing analytical sophistication and effort no new conclusions on output changes have been forthcoming since the work of edwards i950 in this paper we investigate an important class of non linear functions and present a definitive analysis of the output effects of third degree price discrimination under constant elasticity conditions in the general non linear case the effect of discrimination on output may be either positive or negative 2 joan robinson i933 developed the local adjusted concavity criterion to determine the output effects of discrimination for two sub markets with non linear demands edwards i950 raised the possibility that robinson s criterion could lead to erroneous conclusions when the local assumption was relaxed and proposed sufficient global restrictions on the curvature of the demand functions under which the adjusted concavity criterion is correct greenhut and ohta 1976 confirmed edwards suspicion about the fallibility of the adjusted concavity criterion by presenting a counterexample consisting of two constant elasticity demand schedules 3 samuelson i947 lofgren i977 finn i974 and silberberg i970 employing lagrangean techniques suggested by leontief i940 verify edwards global restrictions showing that if the more elastic curve is concave convex and the less elastic curve is convex concave third degree price discrimination will increase decrease output 4

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

leniency programs for multimarket firms the effect of amnesty plus on cartel formation we examine the effect of amnesty plus on dynamic cartel formation in a multimarket setting the amnesty plus program has been adopted as part of the us corporate leniency policy in 1999 and is now vigorously advertised as one of the most compelling tools in generating successful cartel investigations amnesty plus is aimed at attracting amnesty applications by encouraging firms convicted in one market to report their collusive agreements in other markets we show that amnesty plus has two opposite effects on firms ability and incentives to collude which are both increasing in the fine reduction granted first amnesty plus can reduce the deterrence of cartel activities by making it easier for firms to sustain multimarket collusion through strategies involving self reporting after a first cartel detection second it can reduce the expected duration of cartels or delay their formation by increasing firms incentives to self report after a first cartel detection

work incentives hierarchy and internal labor markets this paper argues that contracts with payment based on a ranking of employee performance can provide performance incentives even under asymmetric information that prevents payment based on individual performance only being enforceable such contracts also fit with five features of labor markets that have aroused considerable interest 1 hierarchical wage structures 2 internal promotion 3 wage rates that rise with seniority and experience more than productivity 4 the variance of earnings increasing with experience and 5 wage rates attached to jobs rather than individuals with differentials set by administrative procedures rather than by reference to external market wages

strategic leniency and cartel enforcement the cornerstone of cartel enforcement in the united states and elsewhere is a commitment to the lenient prosecution of early confessors a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency i develop a theoretical model of cartel behavior that provides empirical predictions and moment conditions and apply the model to the complete set of indictments and information reports issued over a 20 year span statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime jel d43 l12 l13 k21 in 1993 the department of justice doj introduced a new leniency program with the intent of destabilizing existing cartels and deterring new cartels the program commits the doj to the lenient prosecution of early confessors in particular it guarantees complete amnesty from federal prosecution to the first confessor from each cartel provided that an investigation into the confes sor s cartel is not already underway it also offers discretionary penalty reductions to conspirators who confess when an investigation is already ongoing the new leniency program has become the cornerstone of cartel enforcement efforts in the united states e g scott d hammond 2004 and recently has inspired antitrust authorities in australia canada the european union japan south korea and elsewhere to introduce similar programs oecd 2002 2003 this paper tests the efficacy of the new leniency program the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency a common finding is that leniency may destabilize cartels because conspirators can simultane

the impact of the 2002 reform of the eu leniency program on cartel outcomes abstract the objective of this study is to empirically assess whether the 2002 reform of the eu leniency program which brought the eu leniency policy much closer to the us policy has increased the european commission s capability to destabilize cartels while making prosecution more efficient more specifically relying on a difference in difference approach we estimate the impact of the 2002 reform on cartel duration fines before and after applying leniency reductions and duration of investigation we find that the 2002 reform decreased cartel duration by about 87 percent but did not significantly affect the other outcome variables thus our findings seem to suggest that the 2002 reform has improved the cartel destabilizing effect of the eu leniency program without enhancing however its effectiveness in prosecuting cartels

cartel pricing dynamics in the presence of an antitrust authority cartel pricing is characterized when firms are concerned about creating suspicions that a cartel has formed balancing concerns about maintaining the stability of the cartel with those of avoiding detection the cartel may either i gradually raise price to its steady state level or ii gradually raise price and then have it decline to its steady state level antitrust laws may have a perverse effect as they make cartel stability easier and thus allow for higher cartel prices

the impact of leniency and whistle blowing programs on cartels antitrust authorities have set up leniency programs for cartel members that denounce their collusive agreements these programs help prosecute participants and can thereby deter collusion we compare the impact of reduced fines and positive rewards and argue that rewarding individuals including firm employees can deter collusion in a more effective way we discuss possible adverse effects of whistle blowing programs on firms behavior and particularly on turnover incentives to innovate and cooperation we also explore explanations for the puzzling fact that managers keep incriminating evidence and argue reward programs actually provide additional incentives for keeping such evidence

tacit collusion with imperfect monitoring in the canadian manufacturing industry an empirical study this article undertakes a cross sectoral analysis of a salient empirical implication of the model of tacit collusion advanced by abreu pearce and stachetti 1986 specifically we assess the prevalence of a first order markovian process for alternating between price wars and collusive periods through nonparametric tests the analysis focuses on 30 different industries in canada the evidence provides weak support for optimal collusion in one industry which is consistent with the idea that such kind of collusive arrangements is unusual or if collusion is all too common that price wars as deviations from collusion are rare

accomplice witnesses and organized crime theory and evidence from italy we develop an agency model of organized crime accounting for the main trade offs involved in the introduction of an accomplice witness program we characterize the optimal policy and identify its main determinants in a framework where public officials can be dishonest our predictions are tested by using data for italy before and after the introduction of the 1991 accomplice witness program as predicted by the model and the earlier antitrust literature the program appears to have strengthened deterrence and enhanced prosecution moreover consistent with a novel prediction of our theory the evidence suggests that the program efficacy is affected by the judicial system efficiency

price cost margins exports and productivity growth with an application to canadian industries a model is estimated for oligopolistic industries producing multiple outputs in short run equilibrium outputs are sold domestically and exported while capital is treated as a quasi fixed factor the model is applied to the canadian non electrical machinery electrical products and chemical products industries the results show that there is significant oligopoly power in each of the industries and that the degree of this power differs between the domestic and export markets total factor productivity is decomposed price cost margins exert little influence but the rate of technological change returns to scale and the rate of capital adjustment determine productivity growth

self reporting investigation and evidentiary standards abstractself reporting schemes have become a substantial part of law enforcement this paper analyzes the optimal use of such schemes when the authority cannot commit to an ex post investigation effort i show that this leads to a negative relationship between self reporting incentives and investigation effort three main conclusions arise first violators self report with a probability of 1 if and only if full amnesty is offered second self reporting schemes are not efficient when the level of harm of the act is high finally authorities can increase the incentives to self report when they convict without hard evidence however a hard evidence standard provides more deterrence and is weakly welfare superior

price fixing policy abstract the prohibition against price fixing is competition law s most important and least controversial provision yet there is far less consensus than meets the eye on what constitutes price fixing and prevalent understandings cannot be reconciled with principles of oligopoly theory this article 1 presents a fundamental reconceptualization of our understanding of horizontal agreements 2 develops a systematic analysis of price fixing policy that focuses on its deterrence benefits and chilling costs and 3 compares this direct approach to commentators favored formulations that typically involve some sort of formalistic communications based prohibition by targeting a subset of means rather than the illicit ends conventional formulations tend to impose liability in cases with lower deterrence benefits and greater chilling costs than those reached under a direct approach and to incur greater administrative costs as well

how to organize crime in criminal organizations diffusing information widely throughout the organization might lead to greater internal efficiency in particular since these organizations are self sustaining through enhancing trust however this may come at the cost of leaving the organization more vulnerable to external threats such as law enforcement we consider the implications of this trade off and characterize the optimal information structure rationalizing both hierarchical structures and organization in cells then we focus on the role of the external authority characterize optimal detection strategies and discuss the implications of different forms of enforcement on the internal structure of the organization and policy finally we discuss a number of applications and extensions in this paper we study the interplay between trust within an illegal organization and its vulnerability to the authorities illegal organizations function more effectively when the people who constitute them trust each other we argue that information sharing is an important factor in building internal trust and cohesion but that can leave the organization vulnerable understanding how this trade off affects an organization s information structure and productivity can allow us to assess detection policies designed to destabilize such organizations since 9 11 the u s congress has passed a 400 billion annual budget for the war on terror new domestic institutions have been created or enhanced among many others the counterterrorism section at the u s department of justice s criminal division international intelligence cooperation has been strengthened and new protocols and controversial legal tools such as the patriot act have been developed however these new agencies and institutions face the same basic questions that have challenged the prosecutors fighting organized crime in italy south america and eastern asia as well as authorities fighting terrorism all over the world now and in the past how can we learn about the internal structure of criminal organizations how should we go about investigating a criminal organization in order to break its internal cohesion how does a criminal organization react to investigation policies we highlight the fact that simply understanding the information links within an organization gives us insight into addressing these questions the anecdotal evidence suggests that there is a wide heterogeneity across the information structures of different criminal organizations the most credited theory about the mafia developed in the early 1990 s has identified the so called cupola as the highest level of the organization supposedly consisting of agents who hold large amounts of information about the organization itself and carry out the enforcement needed for the organization to function 2 these crucial agents are shielded from the authorities since they are typically not directly involved in criminal activities this theory suggests a centralized information and enforcement structure 1 previous drafts have circulated under the titles power and organizational structure under an external threat

retained earnings dynamic internal promotions and walrasian equilibrium in the early stages of the process of industry evolution firms are financially constrained and might pay different wages if workers have heterogeneous expectations about the prospects for advancement offered by each firm s job ladder this paper argues that nevertheless if the output market is competitive the positive predictions of the perfectly competitive model are still a good description of the long run outcome if firms maximize the discounted sum of constrained profits financing expenditure out of retained earnings profits are driven down to zero as the perfectly competitive model predicts ex ante identical firms may follow different growth paths in which workers work for a lower entry wage in firms expected to grow more in the steady state however workers performing the same job in ex ante identical firms receive the same wage i explain when the long run outcome is efficient when it is not and why firms that produce inefficiently might drive the efficient ones out of the market even when the steady state has the positive properties of a walrasian equilibrium to some extent it is not technological efficiency but workers self fulfilling expectations about their prospects for advancement within the firm what explains which firms have lower unit costs grow more and dominate the market

on optimal cartel deterrence policies abstract this paper studies audit policies designed to deter explicit cartels in the most effective way we first compare a standard random and stationary audit strategy with a simple deterministic but non stationary strategy we show that the certainty of an ulterior control may better deter collusion than the recurrent threat of a sword of damocles that would lead on average to same frequency of audit we then explore more complex non stationary strategies and show that it is theoretically possible to deter collusion in the whole economy even with a small audit budget

implicit contracts a survey 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms incomplete contracts are required to yield involuntary layoffs in contract markets otherwise contracts are efficient and pareto optimal by construction there is a close relation between contract theory and neoclassical labor market theory contracts smooth consumption but increase the volatility of labor supply and labor utilization to demand disturbances because contractural insurance eliminates the income effects of socially diversifiable risks this result is similar to the intertemporal substitution hypothesis however the price mechanism in a contract is substantially different contracts embody a nonlinear two part pricing scheme the lump sum part allocates the income consumption consequences of risks and the marginal pricing part allocates production and labor utilization this implicit pricing mechanism is in all respects flexible though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity furthermore the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation indivisibilities appear necessary to account for the split between work sharing and layoffs contracts with private information are also considered in the nonlinear pricing context this abstract was borrowed from another version of this item

margins concentration unions and the business cycle theory and evidence for britain abstract a number of recent studies have examined the cyclical relationship between price cost margins concentration and unions u s data has concluded that unions reduce margins margins vary over the cycle and concentration unionisation and the cycle interact in their effect on margins however there is almost no theory to account for these results we propose a simple theory that assumes only that there is overhead labour present at the firm this produces theoretical predictions that can explain these results and discriminate between existing theories we present results of our own using u k panel data and show similar findings to the u s

taxation and the output and welfare of third degree price discrimination the literature on third degree price discrimination dates back to the work by pigou 14 and joan robinson 15 over half a century ago the subsequent works on the output effect can be seen in edwards 3 silberberg 19 battalio and ekelund 1 greenhut and ohta 7 finn 4 smith and formby 20 formby et al 6 and shih mai and liu 18 the welfare effect by yamey 26 was expanded and generalized by schmalensee 16 varian 24 and schwartz 17 in addition nahata ostaszewski and sahoo 12 demonstrate a sufficient condition for price changes that guarantees a welfare increase with the twice differentiable and monotonically decreasing demand functions previous work on third degree price discrimination has not addressed the issue of taxation governments often levy excise taxes on firm s sales under conditions of third degree price discrimination such taxes can have depending upon the form of the tax quite different output and welfare effects this paper investigates the joint effects of third degree price discrimination and excise taxation in several different ways first in a fashion analogous to suits and musgrave s analysis of simple non discriminating monopoly 22 we consider the effects of ad valorem and unit specific excise taxes at a constant level of output but in a third degree price discrimination environment second in a similar manner we compare cost and demand ad valorem taxes and the so called musgravian transformation 11 27 under discriminatory conditions finally we compare the output and welfare effects of a specific cost ad valorem and demand ad valorem excise tax that generate the same level of revenues in a third degree price discrimination environment

prosecution and leniency programs the role of bluffing in opening investigations this paper characterizes the optimal investigation and leniency policies when the competition authority is privately informed about the strength of a cartel case i show that the competition authority can then exploit firms uncertainty about the risk of conviction to obtain confessions even when the case is weak more generally i show that offering full leniency allows the competition authority to open more successful investigations what i refer to as the activism effect of leniency which overall raises both cartel desistance and cartel deterrence finally i discuss the policy implications of the model

optimal corporate leniency programs this study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs though it can be optimal to provide only partial leniency plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward it is also shown that restrictions should be placed on when amnesty is awarded though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony