DP15241 Let's Collude

Author(s):	Hamid Aghadadashli, Patrick Legros
Publication Date:	September 2020
Keyword(s):	Antitrust fines, Collusion, communication, imperfect information, Incentive Schemes, managerial firms, oligopoly
JEL(s):	C79, D43, D82, K21
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15241

Managers have imperfect information about each other's willingness to collude and may signal this willingness through direct communication or market actions. Owners offer bonuses to managers and trade off productive effort provision, higher profits if managers coordinate on high prices, and the risk of antitrust fines if managers explicitly communicate. Our model shows that the distribution of fines between the owners and the managers is crucial for com- munication to be informative. High or low bonuses can reflect the willingness of owners to induce managers to explicitly communicate, and are red flags for corporate responsibility when collusion is supported by direct communication.