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Title:Simulation and prosecution of a cartel with endogenous cartel formation PDF Logo
Authors:Paha, Johannes
Issue Date:2010
Series/Report no.:Joint discussion paper series in economics 07-2010
Abstract:In many cases, collusive agreements are formed by asymmetric firms and include only a subset of the firms active in the cartelized industry. This paper endogenizes the process of cartel formation in a numeric simulation model where firms differ in marginal costs and production technologies. The paper models the incentive to collude in a differentiated products Bertrand-oligopoly. Cartels are the outcomes of a dynamic formation game in mixed strategies. I find that the Nash-equilibrium of this complex game can be obtained efficiently by a Differential Evolution stochastic optimization algorithm. It turns out that large firms have a higher probability to collude than small firms. Since firms' characteristics evolve over time, the simulation is used to generate data of costs, prices, output-quantities, and profits. This data forms the basis for an evaluation of empirical methods used in the detection of cartels.
Subjects:collusion
cartel detection
cartel formation
differential evolution
heuristic optimization
industry simulation
JEL:C51
C69
C72
D43
L12
L13
L40
Document Type:Working Paper
Appears in Collections:MAGKS Joint Discussion Paper Series in Economics, Universität Marburg

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