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Managerial effort incentives and market collusion

Detail Summary
Date 6 October 2008
Time 11:45 - 13:30

Abstract

This paper investigates the interactions between antitrust intervention and the incentives of managers to collude, but also to exert productive effort.
Managers choose both the competitive strategy of the firm, and their own effort to maximize profits. As both collusion and effort increase profits, a manager may substitute collusion to effort. This affects the congruence of interests between the manager and shareholders: Incentives to induce competition may conflict with incentives to undertake a high effort level. To the contrary, the incentives of the manager tend to make collusion more profitable and more sustainable.
Efficient competition may no longer be feasible, which may make collusion more attractive to shareholders. These effects remain when whistleblowing programs are introduced, but are not intensified. Individual leniency programs have an ambiguous impact, while individual liability is unambiguously beneficial in our context, and complements corporate leniency.

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