ANTITRUST AGENCIES AND HARD-CORE CARTELS: A GAME THEORETIC PERSPECTIVE

This article studies the strategic interactions between cartelists and the antitrust agency in two theoretical game settings. In the simultaneous game, the numerical results show that it becomes harder for the firms to sustain collusion, but easier for the antitrust agency to detect collusion as the damage multiplier and the effectiveness of leniency program increase. In addition, inelastic demand can also lead to higher detection probability. Therefore, the cartel's collusive price can be reduced when the antitrust agency increases the damage multiplier, and/or implements the leniency program more efficiently. In the sequential game where the cartel decides its collusive price in the first stage, the equilibrium collusive price is higher, and antitrust agency's budget allocation on cartel detection is smaller than in the simultaneous game. And the probability of detection is 5% higher in the sequential game.