Endogenous fines and detection probabilities for cartel deterrence: Experimental evidence

This study experimentally investigates the impact of antitrust enforcement on cartel formation and collusive price decisions when fines and detection probabilities depend on the cartel overcharge, i.e. they are endogenous. We impose expected punishments that create two payoff–equivalent collusive price equilibria, but with different levels of riskiness of collusion. Compared to a scenario where expected punishments are exogenous to the cartel overcharge, endogenous punishments see fewer cartels formed on the price with higher riskiness of collusion, but stabilise cartels formed on the price with lower riskiness of collusion, leading to a trade-off between frequency and composition deterrence. As a result, overall welfare effects are ambiguous.