Cartel Stability with Time-Dependent Detection Probabilities

Tinbergen Institute Discussion Paper No. 03-104/2

22 Pages Posted: 2 Jul 2004

See all articles by Jeroen Hinloopen

Jeroen Hinloopen

CPB Netherlands Bureau of Economic Policy Analysis; University of Amsterdam - Amsterdam School of Economics (ASE); Tinbergen Institute

Date Written: December 2003

Abstract

To account for the illegal nature of price-fixing agreements, detection probabilities are introduced in a dynamic oligopoly. It follows that for a trigger strategy to sustain a non-cooperative collusive equilibrium as a SPNE both the discount rate and all per-period detection probabilities have to be "low enough." Also, the domain reduces for which strictest incentive compatibility constraint is binding of the concomitant non-stationary supergame if (i) any per-period detection probability increases, (ii) prospective fine payments are increased, (iii) the period of limitation is reduced for violating antitrust laws.

Keywords: Cartel stability, trigger strategy, detection probabilities, period of limitation

JEL Classification: L12, L41

Suggested Citation

Hinloopen, Jeroen, Cartel Stability with Time-Dependent Detection Probabilities (December 2003). Tinbergen Institute Discussion Paper No. 03-104/2, Available at SSRN: https://ssrn.com/abstract=488662 or http://dx.doi.org/10.2139/ssrn.488662

Jeroen Hinloopen (Contact Author)

CPB Netherlands Bureau of Economic Policy Analysis ( email )

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University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

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