Working Paper: CEPR ID: DP15241
Authors: Hamid Aghadadashli; Patrick Legros
Abstract: Managers have imperfect information about each other’s willingness to collude and may signal this willingness through direct communication or market actions. Owners offer bonuses to managers and trade off productive effort provision, higher profits if managers coordinate on high prices, and the risk of antitrust fines if managers explicitly communicate. Our model shows that the distribution of fines between the owners and the managers is crucial for com- munication to be informative. High or low bonuses can reflect the willingness of owners to induce managers to explicitly communicate, and are red flags for corporate responsibility when collusion is supported by direct communication.
Keywords: collusion; communication; imperfect information; managerial firms; oligopoly; antitrust fines; incentive schemes
JEL Codes: C79; D43; D82; K21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fines on executives (M12) | credible sharing of private information among managers (M54) |
| structure of fines (G32) | communication behavior (L96) |
| fines too low (L49) | communication with little informational content (L96) |
| fines too high (R48) | no manager wants to communicate (Y70) |
| distribution of expected fines (D39) | managers' willingness to communicate (L96) |
| communication (L96) | outcomes that replicate those under perfect information (D83) |
| structure of fines (G32) | collusion dynamics (D74) |