‘Endogenous antitrust enforcement and strategic cartel pricing: Experimental evidence’

The next presentation in our Autumn seminar series takes place on Friday 6th November, with the return of Carsten Crede (CCP and ECO) who will be presenting ‘Endogenous antitrust enforcement and strategic cartel pricing: Experimental evidence‘, a joint project with Liang Lu (CCP and ECO). An abstract for his presentation can be found below.

Abstract

We experimentally examine the effects of endogenous antitrust enforcement, i.e. an enforcement that increases in the cartel overcharge, on cartel prices and stability. With a novel experimental design, we capture the non-profitability-related strategic effects of cartel pricing as a reaction to the endogenous punishment. By allowing self-selection of the cartel into expected low punishment, endogenous enforcement is effective when both fine and detection probability are sufficiently high. However, it may render deterrence less effective if fines are not sufficiently high, suggesting that the substitutability with respect to deterrence between fines and detection probabilities is limited. Nevertheless, both enforcement elements have welfare implications due to strategic effects: whereas high fines directly reduce cartel formation and undermine stability, high detection probabilities decrease the longevity of existing cartels and with it their economic harm.

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room 2.03. To find out about the other seminars in this series, visit the seminar pages on our website.

‘Transition from Explicit to Tacit Collusion and the Bias in Cartel Damage Estimates’

We’re into November but still plenty more insightful seminars on competition policy await us this Autumn. We continue the series this week with our very own Carsten Crede (CCP & ECO), presenting his research on ‘Transition from Explicit to Tacit Collusion and the Bias in Cartel Damage Estimates‘. Carsten is a PhD researcher at the UEA School of Economics and his research interests include industrial organisation and applied econometrics.  An abstract for his presentation can be found below.

Abstract

We explore the determinants of the incidence and magnitude of post-cartel tacit collusion. In a market experiment we allow periods of explicit communication under different competitive regimes followed by periods of no-communication, in which tacit agreements may take place. In the communication phase, we separately employ fines with and without leniency, firms’ ability to use targeted punishment, and experience of prior non-communication market contact. Even though there are differences in the magnitude, we find that the incidence of post-cartel tacit collusion is a robust common phenomenon across treatments. Moreover, the magnitude of tacit collusion is determined specifically by preceding success of formation and stability of explicit cartels. This indicates that the standard methods of estimating cartel damages may have a downward bias as they do not consider the damages caused by the post cartel tacit collusion. Overcharge estimations show that this bias increases with preceding cartel success. Finally, since it is possible from the results to rank different competitive regimes in terms of the formation and stability of successful explicit cartel, this study can also provide prescriptions regarding minimizing such overall damages.

The seminar takes place from 13:00-14:00 on Friday 7th November in the Thomas Paine Study Centre, Room 1.03.