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• W3122002527 abstract "Introduction Trust is the glue that binds couples, communities, and countries. Societies without a sufficient wealth of trust cannot function efficiently, sometimes cannot function at all. However, trusting relationships are often difficult to form and maintain. This is particularly true when the short-term interests of the individual are in conflict with the long-term interests of the group. Economists use game theory to model such relationships through the Prisoner's Dilemma. This Article analyzes the Prisoner's Dilemma as a game of trust and then applies the lessons of the game to cartels and antitrust law. Cartels are a focus of concern for many reasons. Cartels cause allocative inefficiency by reducing production in order to raise market price.1 This forces consumers to pay significantly more money for products, from luxuries like high-end art to necessities like vitamins and pharmaceuticals.2 While many-and probably most-cartels fail, a sizeable fraction of studied cartels reveal firms successfully raising prices significantly above costs.3 Cartels may also create productive inefficiencies when they protect inefficient manufacturers,4 thus increasing the average production costs in an industry.5 Historically, cartels have exhibited greater influence over the international economy. Cartels were so powerful and ubiquitous during the interwar period that economists estimate international cartels controlled almost forty percent of world trade between 1929 and 1937.6 With the legal condemnation of most cartels in the modern era,7 it is virtually impossible to gauge the full economic impact of cartels on today's economy and consumers. Fortunately, cartels are inherently unstable. Many of the problems of cartel stability are related to trust. For a cartel to be formed, each participant must trust its cartel partners not to do two things: cheat on the agreement by charging less than the fixed price,8 or tell antitrust authorities about the cartel. Cheating and confessing represent two different types of defection from the cartel.9 Cartel relationships entail two different Prisoner's Dilemmas: whether to abide by the cartel-established price agreements, and whether to inform the antitrust authorities about the cartel's existence, activities, and membership. Without trust among the cartel members, many cartels will collapse under the weight of distrust, anticipated defections, and actual defections. All criminal and regulatory law attempts to deter undesirable conduct by imposing penalties; antitrust law-in both its criminal and civil capacities-serves a similar function. However, unlike other statutory schemes, antitrust law also sows the seeds of distrust. In the context of cartels, distrust adds another layer of deterrence. Part One lays out the basics of the Prisoner's Dilemma in which two players must find a way to cooperate when both have a strong incentive to defect. Cartels are a form of a Prisoner's Dilemma. Thus, cartels may look to the game-theoretical solutions to the Prisoner's Dilemma in search of a mechanism to ensure mutual cooperation among competing firms. Antitrust authorities may also study solutions to the Prisoner's Dilemma in an effort to prevent competitors from successfully colluding. Part One concludes that mutual trust is an effective solution to the Prisoner's Dilemma. Part Two explains how trust stabilizes cartels and how, historically, cartels have employed trust-building measures in order to create and maintain successful cartels. What have commonly been referred to in scholarship and caselaw as cartel-facilitating devices can often be characterized as trust-facilitating devices. Part Two analyzes the following as trust-facilitating factors: the number of firms, personal relationships, the use of goodwill gestures among cartel members, price transparency, communication, cross-ownership and financial interdependence, interlocking directorates, group identity and social norms, cartel experience, reputation, and social status. …" @default.
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• W3122002527 date "2004-02-01" @default.
• W3122002527 modified "2023-09-26" @default.
• W3122002527 title "Trust, Distrust, and Antitrust" @default.
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