Delegation and strategic collusion under antitrust policies: An experiment

Abstract

When firm owners delegate decision-making to managers, such as corporate executives who operate firms directly, a firm's behavior can vary depending on how the owner determines the incentives of the managers. This study employs a lab experiment to investigate the impact of delegation on collusive behavior of firms in a situation where antitrust policies exist. The experiment highlights the following two key findings: (i) Firms form cartels strategically, alternating their collusive and competitive output to evade antitrust regulations, rather than consistently producing collusive output to maximize joint profits; and (ii) Delegation does not necessarily increase the overall number of cartels, but it may change how cartels are formed.