Three Chapters Exploring Themes in Competition and Collusion

Abstract

In this thesis I present three chapters that explore various themes in competition with a focus on collusion and spatial competition.Chapter one examines whether the availability of late-stage settlements for defendants in criminal price-fixing suits has a negative impact on the effectiveness of early stage leniency programs in the context of antitrust enforcement. Our main finding is that an appropriately designed settlement program can make collusion more difficult: in equilibrium, the adoption of an optimal settlement program by an antitrust authority (AA) reduces the occurrence of cartels by decreasing the long-run gains from collusion. However, overly generous settlement policies may undermine leniency programs and encourage the formation of more cartels.Chapter two explores the relationship between business-cycle fluctuations and collusive behavior. From a theoretical perspective, we demonstrate that the degree of antitrust enforcement (external cartel stability) directly influences the boundary that determines whether positive demand shocks are either pro-collusive or anti-collusive.We find that as cartels become increasingly unstable, they have a preference for defecting in the presence of positive demand shocks since there is riskiness associated with continuing to collude under a strong enforcement regime. From an empirical perspective, we find that the observed collusive activity is weakly procyclical, however, much of the variation is explained by enforcement and monitoring policies.