Post-Cartel Tacit Collusion: Determinants, Consequences, and Prevention

Subhasish M. Chowdhury, Carsten Crede

Research output: Contribution to journalArticle

Abstract

We experimentally investigate the determinants of post-cartel tacit collusion (PCTC), the effects of PCTC on market outcomes, and potential policy measures aimed at its prevention. PCTC occurs robustly with or without fines or leniency and is determined both by collusive price hysteresis and learning about cartel partners’ characteristics and strategies. As a result, it is also strongly related to the preceding cartel success. PCTC generates a downward bias in the estimated cartel overcharges. This threatens the effectiveness of deterrence induced by private damage litigation and fines imposed on colluding firms based on the overcharge. This bias further increases with preceding cartel stability such that especially more stable sets of colluding firms may be deterred less when PCTC is present. Rematching colluding subjects with strangers within a session prevents PCTC. This indicates that barring colluding managers from their posts could help impede PCTC in the field.
Original languageEnglish
Article number102590
JournalInternational Journal of Industrial Organization
Volume70
Early online date17 Mar 2020
DOIs
Publication statusPublished - May 2020

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