Arnoldshain Seminar XV
“The EU and Latin America Facing Globalization”
September 4 – 6, 2017
Vienna


   
Avramovich, Maria Cecilia, Universidad Nacional de Córdoba, The Welfare Implications of Cartel Network Design.
This paper is a first step in understanding the welfare impact of introducing a network design problem in a price-fixing collusion game. Within a model in which the number of conspiring people (e.g., managers) exceed that of cartel firms, the decision between a "complete" and a "representative" network design for cartel internal organization depends on the trade-off between the profit gains and losses from delegating cartel decisions to a handful of members. In this context, two results stand out. First, not considering alternative network designs for cartel organization underestimates the true population of cartels. Second, while a more severe antitrust policy contributes to deterrence, it also distorts (not-monotonously) the network distribution of surviving cartels. Assuming productive inefficiencies from delegation, the latter effect can be detrimental for social welfare, as it may induce surviving cartels to switch their "complete" network design for the "representative" (inefficient) one. Finally, I show how the introduction of Leniency Programs can exacerbate the perverse effect on welfare from policy.