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The Impact of Antitrust Fines on the Formation of Collusive Cartels

Abstract The literature on collusive cartels has mainly focused on the impact of antitrust fines on the sustainability of cartels, in infinitely repeated games. This approach, however, does not allow us to study the effect of antitrust fines on the incentives to form cartels in the first place. In this paper, we adopt a coalitional game approach to modeling collusive agreements, showing that antitrust fines may drive firms from partial cartels to a monopolistic cartel. Moreover, by introducing uncertainty on market demand, we show that the socially optimal competition policy can call for a finite or even zero antitrust penalty, even if there are no enforcement costs. We provide a sufficient condition for these results to apply to any coalitional game of cartel formation with symmetric firms. Then, we discuss the extension to asymmetric firms and dynamic collusion.