Screening adaptive cartels
Ortner, Juan; Nakabayashi, Jun; Kawai, Kei; Chassang, Sylvain
We propose a theory of equilibrium antitrust oversight in which: (i) regulators
launch investigations on the basis of suspicious bidding patters; (ii) cartels can adapt
to the statistical screens used by regulators, and may in fact use them to enforce cartel
compliance. We emphasize the use of safe tests, i.e. tests that can be passed by
competitive players under a broad class of environments. Such tests do not hurt competitive
industries and do not help cartels support new collusive equilibria. We show
that optimal collusive schemes in plausible environments fail natural safe tests, and
that cartel responses to such tests explain unusual patterns in bidding data from procurement
auctions held in Japan. This provides evidence that adaptive responses from
cartels is a real concern that data-driven antitrust frameworks should take into account.
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