Collusion in the Presence of an Active Antitrust Authority
Abstract
This paper reports findings from an experiment investigating the effect of different levels and types of antitrust interventions on price collusion. The more active the antitrust authority, the lower the rate of cartel formation. With price-sensitive antitrust interventions, subjects use smaller price increases and avoid simultaneous increases to avoid the suspicion of the authority. This results in significantly lower overall and cartel prices in treatments where the authority responds to large and/or simultaneous price increases. While subjects attempt to avoid detection, the overall detection rate increases in the level of activity of the antitrust authority. Communication between subjects encourages price movements that lead to detection and can actually reduce the realized cartel price.
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