International journal of industrial organization vol:24 issue:6 pages:1213-1229
To account for the illegal nature of price-fixing agreements, per-period detection probabilities that can vary over time are introduced in a dynamic oligopoly. The resulting ICCs for internal cartel stability indicate that for discount factors up to 10% per-period detection probabilities of 5% are needed to reduce the number of cartel members by 50%. For the special case of stationary supergames with constant per-period detection probabilities p elegant rules emerge: internal cartel stability requires the discount factor to increase with 100xp/(1-p) percent while a fixed fine of 100x(1-p)/p percent of incremental cartel profits is required for making the ICC always binding. (c) 2006 Elsevier B.V. All rights reserved.