the effectiveness of leniency programs when firms choose the degree of collusion abstract an antitrust authority grants leniency pre and post investigation it chooses the probability of an investigation firms pick the degree of collusion the more they collude the higher are profits but so is the probability of detection firms thus trade off higher profits against higher expected fines if firms are sufficiently patient leniency is ineffective it may even increase collusion increasing the probability of an investigation at low levels does not increase deterrence increasing the probability of an investigation at high levels reduces collusion yet never completely with bare pre investigation leniency deterrence is better than without leniency if firms are sufficiently impatient granting leniency pre and post is better than merely pre investigation

combining cartel penalties and private damage actions the impact on cartel prices abstract in many countries antitrust enforcement by competition authorities through prosecution and the imposition of penalties is complemented in price fixing cases by private damage actions which should affect both cartel deterrence and the prices set by those cartels that do form we show that the impact of combining penalties and damages on cartel prices is not clearcut and depends on both the nature of the penalty regime and the way that damages are calculated we demonstrate this by focusing on two ways of calculating damages that have been advocated in practice and two different forms of the widely used revenue based penalty regime when the simple form of revenue based penalties is in force the standard method of calculating damages worsens its harmful pricing effects whereas the proposed alternative method of calculating damages can overturn them when a more sophisticated form of revenue based penalties is in operation imposing damages will improve its beneficial pricing effects under both methods of damage calculation but the alternative method is more effective in all cases combining penalties and damages improves deterrence

competition policy and cartel size this article examines endogenous cartel formation in the presence of a competition authority competition policy is shown to make the most inclusive stable cartels less inclusive in particular small firms that might have been cartel members in the absence of a competition authority are no longer members regarding the least inclusive stable cartels competition policy can either decrease or increase their size and in the latter case the collusive price can rise

competitive prices as optimal cartel prices in a linear oligopoly model with antitrust enforcement the optimal cartel price converges to the competitive equilibrium price the set of sustainable cartel prices does not shrink to the competitive price we identify necessary conditions for this counter intuitive convergence result

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

treble damage awards in private lawsuits for price fixing the traditional model for assessing the effects of treble damage pena lties on price fixing is reexamined and shown to yield surprising res ults unless the probability of detection is extremely sensitive to the price charged increasing the damage multiple will affect neither market efficiency nor expected distribution and will raise the mark et price copyright 1987 by university of chicago press

bid rigging and the threat of government prosecution in this article i develop a simple bidding model in which collusion is endogenous buyers at a first price sealed bid auction decide whether to rig their bids given that they face the threat of government prosecution a legal authority chooses whether to investigate the buyers on the basis of the bids tendered in the unique sequential equilibrium of the game buyers rig their bids with positive probability but the legal authority can never ascertain on the basis of the bids alone that a conspiracy has formed

does the tax system favor investment in high tech or smoke stack industries in this paper we examine whether differential use of depreciable assets gives rise to differential tax treatment of high technology industries relative to other industries we calculate the total effective tax rate on a marginal investment in each of 34 assets and weighting by the use of these assets we calculate total effective tax rates for 73 industries we find considerable variation within the high tech sector and within the more traditional sector but for the case of a taxable firm with a given debt equity ratio we do not find any systematic differences between overall rates in the two sectors

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

excess capacity and collusion in this paper the authors analyze a restricted class of equilibria in the dynamic model of j p benoit and v krishna 1987 in which firms choose their scale of operation before engaging in a repeated game of price competition benoit and krishna established that all firms carry excess capacity in all collusive equilibria as the authors are interested in the relationship between excess capacity and collusion in price they examine equilibria in which firms tacitly collude in price but not in investment decisions copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

cartel pricing dynamics with reference dependent preferences this paper characterizes cartel pricing dynamics when consumers have reference dependent preferences firms have a common discount factor unknown to consumers and a common cost i i d over time consumers observe prices over time and update their expectations about firms ability to collude which affects consumers price expectations reference dependent preferences make consumers lose utility when the actual price is higher than the expected one which forces colluding firms to raise prices alongside consumers price expectations this increasing price path is capped by the price arising when consumers are sure that firms collude

optimal antitrust policy under different regimes of fines abstract this paper shows how antitrust laws against price fixing can be enforced efficiently in the presence of asymmetric information between the authorities and the industry and under different regimes of pecuniary punishment we consider two regimes of fines that are often used in practice the first involves a fine based on revenues of the industry while the second is related to the damage caused to consumers the analysis shows that since investigation is costly it is optimal from a welfare point of view to tolerate some degree of collusion in both cases comparing the deterrence levels we show that no regime is a priori better than the other in addition we show that for industries where the possibilities of collusion are small the first system dominates the second in terms of efficiency conversely for high possibilities of collusion the second system is better

correlated demand shocks and price wars during booms the supergame theoretic model of price competition rotemberg and saloner 1986 is re examined in the case of serially correlated demand shocks the equilibrium price is shown to exhibit the same counter cyclical movement as in the i i d case if the discount factor and the number of firms satisfy certain relationship

optimal cartel trigger price strategies abstract a dynamical model of industry equilibrium is described in which a cartel deters deviations from collusive output levels by threatening to produce at cournot quantities for a period of fixed duration whenever the market price falls below some trigger price in this model firms can observe only their own production level and a common market price the market demand curve is assumed to have a stochastic component so that an unexpectedly low price may signal either deviations from collusive output levels or a downward demand shock

some implications of antitrust laws for cartel pricing abstract price dynamics are characterized for a price fixing cartel antitrust laws reduce cartel prices even though cartel detection occurs with probability zero in response to cheating the non collusive price gradually moves from the collusive price to the static nash equilibrium price

the deterrence of collusion by a structural remedy abstract as a penalty for illegal collusion this paper shows that a structural remedy makes collusion unprofitable when collusion is most stable and that it can be a greater deterrent than fines or damages

penalizing cartels the case for basing penalties on price overcharge yannis katsoulacos acknowledges that this research has been co financed by the european union european social fund esf and greek national funds through the operational program education and lifelong learning of the national strategic reference framework nsrf research funding program aristeia coleg

the deterrent effect of antitrust enforcement in this paper we formulate and test a model of collusive pricing in the presence of antitrust enforcement we show that a cartel s optimal price is likely to be neither the competitive price nor the price that the cartel would set in the absence of antitrust enforcement but rather an intermediate price that depends on the levels of antitrust enforcement efforts and penalties our empirical results reveal that increasing antitrust enforcement in the presence of a credible threat of large damage awards has the deterrent effect of reducing mark ups in the bread industry

penalties and the deterrence of unlawful collusion this paper investigates the size of penalties required to deter cartel formation allowing the penalty to be increasing in duration within the infinitely repeated game framework penalties do not need to be as severe as previous research would suggest

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

antitrust enforcement under asymmetric information optimal antitrust policy toward collusion to fix prices is examined in an asymmetric information setting the antitrust authority does not know cartel costs and so cannot distinguish between a high cost competitive industry and a low cost cartel the problem differs from principal agent models since firms can choose competitive or collusive behavior with costly enforcement the authority is shown to commit itself to a schedule of probabilities of bringing suit that depends on the observed market price collusive firms moderate markups to reduce the risk of being prosecuted copyright 1989 by royal economic society

collusion under monitoring of sales collusion under imperfect monitoring is explored when firms prices are private information and their quantities are public information such an information structure is consistent with several recent price fixing cartels such as those in lysine and vitamins for a class of symmetric oligopoly games it is shown that symmetric equilibrium punishments cannot sustain any collusion an asymmetric punishment is characterized that does sustain collusion and it has firms whose sales exceed their quotas compensating those firms with sales below their quotas in practice cartels could have performed such transfers through sales among the cartel members

collusion and predation under almost free entry abstract this study investigates the degree of cooperation that firms can support in the absence of significant barriers to entry a free entry subgame perfect equilibrium is defined by q n where q is the collusive output rate and n is the number of active firms such that there is no incentive for an active firm to deviate output from q and there is no incentive for a potential entrant to enter the industry it is shown that for all n 1 if the discount factor is sufficiently high there exists a free entry equilibrium in which active firms sustain a non trivial degree of cooperation cooperation is supported by active firms credibly threatening to respond to entry with a period of aggressive competition

determination of optimal penalties for antitrust violations in a dynamic setting we analyze a differential game describing the interactions between a firm that might be violating competition law and the antitrust authority the objective of the authority is to minimize social costs loss in consumer surplus induced by an increase in prices above marginal costs it turns out that the penalty schemes which are used now in eu and us legislation appear not to be as efficient as desired from the point of view of minimization of consumer loss from price fixing activities of the firm in particular we prove that full compliance behavior is not sustainable as a nash equilibrium in markovian strategies over the whole planning period and moreover that it will never arise as the long run steady state equilibrium of the model we also investigate the question which penalty system enables us to completely deter cartel formation in a dynamic setting we found that this socially desirable outcome can be achieved in case the penalty is an increasing function of the degree of offence and is negatively related to the probability of law enforcement

calculating the damage of a cartel subject to transition periods the international uranium cartel in the 1970s abstract the theory about cartel pricing and descriptive price statistics suggests that the price path over a cartel life cycle can be subject to gradual non linear transitions where the price path moves from to the non collusive to from the maximum collusive equilibrium ignoring such transitions can lead to biased estimates of the cartel and damage effects smooth transition regression str models are a class of models well suited to capture such transitions also under realistic conditions when the transition start and end dates are uncertain and when the two transitions are asymmetric we evaluate the international uranium cartel during the 1970s using both the mainstream approach based on a linear specification with a dummy variable to capture the cartel and an str model we are the first to use str models in the evaluation of a cartel damage effect using the str model we find that the damage effect is about 18 times higher as compared to the mainstream model

price fixing the probability of getting caught the authors estimate the probability that a price fixing conspiracy will be indicated by federal authorities to be at most between 0 13 and 0 17 in a given year the authors estimate is based on conspiracy durations calculated from data reported for a large sample of department of justice cases and a statistical birth and death process model describing the onset and duration of conspiracies copyright 1991 by mit press

a model of collusion timing abstract i develop a dynamic model of collusion affording a substantial role to entry heterogeneous firms make collusion entry exit and investment decisions within an evolving environment the collusive agreement adopted is a rule of thumb motivated by the details of collusion in the lysine market it is found that an entrant will wait until it has a market share comparable to its competitors before agreeing to collude allowing for collusive possibilities tends to yield a less concentrated industry with reduced consumer welfare the model characterises events in the lysine market and could provide insights into markets with the potential for collusion and entry and uncertainty about the characteristics of potential entrants

strategic niche management from a business perspective taking cleaner vehicle technologies from prototype to series production strategic niche management has been outlined as a policy approach to assist development and diffusion of cleaner new technologies based on a case study describing the efforts of a leading actor in the heavy vehicle industry to develop and commercially introduce hybrid electric vehicles this paper discusses strategic niche management from the perspective of the manufacturing firm in particular the paper analyses experiences from extensive field tests executed in london tests which involved a number of different manufacturers hybrid systems and vehicles the scale of this technological niche added confidence and credibility to the technology and helped opening up an important niche market which was supported by an extensive subsidy scheme the analysis shows how the field tests and the subsidies jointly functioned as bridging policies that facilitated an important step in the market formation process the analysis further points at a critical tension between niches and the volume oriented business of a major vehicle manufacturer showing how investments in new technology need to be warranted in market trends and projections of future sales and production volumes to become accepted within a vehicle manufacturer s organization

collusion with intertemporal price dispersion we develop a theory of optimal collusive intertemporal price dispersion dispersion clouds consumer price awareness encouraging firms to coordinate on dispersed prices our theory generates a collusive rationale for price cycles and sales patient firms can support optimal collusion at the monopoly price for less patient firms monopoly prices must be punctuated with fleeting sales the most robust structure involves price cycles that resemble edgeworth cycles low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions however for sufficiently low attentiveness price rises are also a concern

post cartel pricing during litigation standard methods in the u s for calculating antitrust damages in price fixing cases are shown to create a strategic incentive for firms to price above the non collusive price after the cartel has been dissolved this results in an overestimate of the but for price and an underestimate of the level of damages the extent of this upward bias in the but for price is greater the longer the cartel was in place and the more concentrated the industry

what can the duration of discovered cartels tell us about the duration of all cartels estimates of average cartel duration and the annual probability of cartel death are based on data for discovered cartels it is recognised that these estimates could be biased because the population of discovered cartels may not be a representative sample of the latent population of cartels this article constructs a birth death discovery process to investigate the source and direction of possible biases bayesian inference is used to provide bounds on the extent of the bias and deliver an improved set of beliefs on the probability of cartel death

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 collusion on price behavior empirical results from two recent cases abstract we use extended arch and garch models to examine the differences in the behavior of the first two moments of the price distribution during collusive and competitive phases of two recently discovered conspiracies citric acid and lysine according to our results the conspirators managed to raise prices by 9 and 25 cents per pound in the short run relative to non collusive periods also the variance of prices during the lysine conspiracy was lower and the variance of prices during the citric acid conspiracy was higher than during more competitive periods the proposed methodology may be used for antitrust screening and prosecution purposes

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

cartel pricing dynamics with cost variability and endogenous buyer detection this paper characterizes collusive pricing patterns when buyers may detect the presence of a cartel buyers are assumed to become suspicious when observed prices are anomalous we find that the cartel price path is comprised of two phases during the transitional phase price is generally rising and relatively unresponsive to cost shocks during the stationary phase price responds to cost but is much less sensitive than under non collusion or simple monopoly the length of the transition phase is decreasing in the variance of cost shocks it is also shown that the cartel price path may overshoot its long run level so that price converges from above

dynamic duopoly prices and quantities we study a dynamic model of duopoly in which firms choose both prices and quantities if quantity capacity choices are relatively inflexible firms generally carry excess idle capacity in equilibrium because of this enforcement cost firms are unable to achieve monopoly levels this contrasts with models in which which firms compete in either prices or quantities alone on the other hand if capacities are flexible firms may be able to sustain monopoly behaviour

antitrust penalties and the implications of empirical evidence on cartel overcharges research for this paper was supported by a grant from the economic and social research council res 062 23 2211

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

collusion over the business cycle we present a theory of collusive pricing for markets in which demand alternates stochastically between fast growth boom and slow growth recession phases we show that 1 the most collusive prices are weakly procyclical countercyclical when demand growth rates are positively negatively correlated through time and 2 the amplitude of the collusive pricing cycle is larger when the expected duration of boom phases decreases and when the expected duration of recession phases increases we also offer a generalization of rotemberg and saloner s 1986 model interpreting their findings in terms of transitory demand shocks that occur within broader business cycle phases

a dynamic oligopoly with collusion and price wars we provide a collusive framework with heterogeneity among jirms investment entry and exit it is a symmetric information model in which it is hard to sustain collusion when there is an activejim that is likely to exit in the near future numerical analysis is used to compare a collusive to a noncollusive environment only the collusive industry generates price wars also the collusive industry offers both more and higherquality products to consumers albeit often at a higher price the positive effect of collusion on variety and quality more than compensates consumers for the negative effect of collusive prices so that consumer surplus is larger with collusion

examining models of collusion the market for lysine abstract we compare the experience with collusion in the market for lysine with the predictions of theory the lysine market provides an ideal setting following the confessions of cartel participants in antitrust investigations data availability allows demand and cost functions to be estimated and observed mark ups compared with predictions we find that several integral aspects of collusion in the lysine market are not adequately addressed in the literature the dynamics associated with entry and investment persistent asymmetries between firms the cartel s bargaining problem and the existence of cheating in equilibrium these issues are likely to have much wider applicability beyond the lysine market

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms

does enforcement deter cartels a tale of two tails this paper investigates the deterrent impact of anti cartel enforcement it is shown theoretically that if enforcement is effective in deterring and constraining cartels then there will be fewer cartels with low overcharges and fewer with high overcharges this prediction provides an indirect method for testing whether the enforcement of competition law is effective using historical data on legal cartels to generate the counterfactual we find significantly less mass in the tails of the overcharge distribution compared to illegal cartels this result is robust to controlling for confounding factors and we interpret this as the first tentative confirmation of effective deterrence

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