Post-cartel tacit collusion: Determinants,consequences, and prevention |
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| Institution: | 1. Department of Economics, University of Bath, 3 East, Bath BA2 7AY, UK;2. Bundeskartellamt, Kaiser-Friedrich-Straße 16, Bonn 53113, GER;1. Centre for Competition Policy, University of East Anglia, Norwich NR4 7TJ, UK;2. School of Economics, University of East Anglia, Norwich NR4 7TJ, UK;3. Norwich Business School, University of East Anglia, Norwich NR4 7TJ, UK;4. Comtech Systems Inc., Victoria, BC, Canada;1. KU Leuven, Belgium;2. CEPR, UK;3. InterMutualistisch Agentschap, Belgium;1. Management School, University of Liverpool, Chatham Street, Liverpool L69 7ZH, United Kingdom;2. Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, United Kingdom;3. Düsseldorf Institute for Competition Economics (DICE), Germany;1. Department of Economics, Finance and Legal Studies, The University of Alabama, 200 Alston Hall, Tuscaloosa, AL, 35487, USA;2. Econonomic Science Institute, Chapman Univeristy, One University Dr., Orange, CA 92866, USA;3. Department of Economics, Clemson University, 228 Sirrine Hall, Clemson, SC 29634, USA |
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| Abstract: | We experimentally investigate the determinants of post-cartel tacit collusion (PCTC), the effects of PCTC on market outcomes, and potential policy measures aimed at its prevention. PCTC occurs robustly with or without fines or leniency and is determined both by collusive price hysteresis and learning about cartel partners’ characteristics and strategies. As a result, it is also strongly related to the preceding cartel success. PCTC generates a downward bias in the estimated cartel overcharges. This threatens the effectiveness of deterrence induced by private damage litigation and fines imposed on colluding firms based on the overcharge. This bias further increases with preceding cartel stability such that especially more stable sets of colluding firms may be deterred less when PCTC is present. Rematching colluding subjects with strangers within a session prevents PCTC. This indicates that barring colluding managers from their posts could help impede PCTC in the field. |
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