Cartel Stability with Time-Dependent Detection Probabilities
Tinbergen Institute Discussion Paper No. 03-104/2
22 Pages Posted: 2 Jul 2004
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: Suggested Citation
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