Intermittent Collusive Agreements: Antitrust Policy and Business Cycles

Abstract

Abstract In this article we study collusive strategies and the optimal level of fines when firms face random demand fluctuations. Collusive firms can choose to alternate collusive periods with more competitive periods: such an intermittent strategy can be implemented particularly if demand variability is high. Firms then set competitive prices during recessions to cancel the risk of cartel detection and keep the ability to cartelize for the future. If the maximum fine is too low to fully deter cartels, the antitrust authority can influence the choice of collusive agreement by varying the level of fines according to demand states. If the demand is highly variable, the antitrust authority may induce firms to collude in all demand states (by decreasing the fine during recessions), in order to detect and break up cartels more easily. On the other hand, if the demand variability is low the optimal policy may be to reduce the fine when demand is high.