The Welfare Implications of Cartel Network Design

Congreso; Arnoldshain Seminar; 2017

This paper is a first step in understanding the welfare implications of introducing a network-design problem in a price-fixing collusion game. Within a model in which the number of conspiring people exceed that of cartel firms, the decision between a "complete" and a "representative" network design for cartel internal organization depends on the trade-off between the profit gains and losses from delegating cartel decisions to a handful of members. In this context, two results stand out. First, not conside-ring alternative network designs for cartel organization underestimates the true population of cartels. Second, while a more severe antitrust policy contributes to deterrence, it also distorts (not-monotonously) the network distribution of surviving cartels. Assuming productive inefficiencies from delegation, the latter effect can be detrimental for social welfare, as it may induce surviving cartels to switch their "complete" network design for the "representative" (inefficient) one. Finally, I show how the introduction of Leniency Programs can exacerbate the perverse effect on welfare from policy.