The Welfare Implications of Cartel Network Design

Jornada; L Jornadas Internacionales de Finanzas Públicas; 2017

UNC-FCE

This paper investigates the welfare implications of introducing a network-design problem in a price-fixing collusion game. Within a model in which each cartel conspirator has a specific and irreplaceable market expertise, I demonstrate that a network design that serves to the needs of concealment can be detrimental to the objective of maximum profits, and vice versa. In this context, while a more severe antitrust policy contributes to deterrence, it can also distort the network design of surviving cartels, creating inefficiencies that are not considered in standard models of collusion. Leniency Programs can exacerbate this perverse effect from policy.