Antitrust as facilitating factor for collusion

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Abstract

We study collusion in an infinitely repeated prisoners' dilemma when firms' discount factor is private information. If tacit collusion is not feasible, firms that are capable of sustaining high prices may still be willing and able to collude explicitly. Firms eager to collude may signal their intentions when forming the agreement is costly, but not too costly. As antitrust makes explicit collusion costly in expected terms, it may in fact function as a signaling device. We show that there always exists a cost level for which explicit collusion is viable. Moreover, our analysis suggests that antitrust enforcement is unable to fully deter collusion.
Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University, Graduate School of Business and Economics
DOIs
Publication statusPublished - 1 Jan 2013

Publication series

SeriesGSBE Research Memoranda
Number011

JEL classifications

  • l40 - Antitrust Issues and Policies: General
  • l10 - Market Structure, Firm Strategy, and Market Performance: General

Cite this

Bos, A. M., Letterie, W. A., & Vermeulen, A. J. (2013). Antitrust as facilitating factor for collusion. Maastricht University, Graduate School of Business and Economics. GSBE Research Memoranda, No. 011 https://doi.org/10.26481/umagsb.2013011