Abstract
We conduct an experimental study of cartel behaviour in the presence of an active competition authority. Treatments differ with respect to how responsive the authority is to collusion and suspicious pricing behaviour by firms. Subjects are successful in coordinating strategies to avoid antitrust detection as we observe gradual price increases and staggered pricing conforming with theory. We find that the presence of a more active antitrust regime substantially improves the internal stability of cartels. We attribute this result to the common-enemy (or esprit de corps) effect induced by the threat of cartel prosecution. A more responsive antitrust policy in this experiment provides higher cartel deterrence which lowers both prices for consumers and the cost of antitrust enforcement.
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