Cartel Pricing Dynamics in the Presence of an Antitrust Authority
Volume: Volume 35, No. 4
Issue: Winter 2004
Pages: 651-673
Authors: Joseph E. Harrington, Jr.
Title: Cartel Pricing Dynamics in the Presence of an Antitrust Authority
Abstract: Cartel pricing is characterized when firms are concerned about creating suspicions that a cartel has formed. Balancing concerns about maintaining the stability of the cartel with those of avoiding detection, the cartel may either (i) gradually raise price to its steady-state level or (ii) gradually raise price and then have it decline to its steady-state level. Antitrust laws may have a perverse effect as they make cartel stability easier and thus allow for higher cartel prices.