Endogenous Cartel Organization and Antitrust Fine Discrimination

Third parties such as trade associations often assist cartels to distinguish defecting from complying behaviour, whereby cartel persistence can increase. We investigate how cartels sort themselves into different forms of cartel organization and whether enforcement can be improved by setting fines contingent on the organizational form. A fine reduction for firms that operate without third party assistance causes some cartels to switch to a less persistent organizational form. Two drawbacks of this fine differentiation are that new cartels will arise and that the existing cartels will become more persistent as the need to punish defectors decreases.