COMPETITION POLICY AND CARTEL SIZE

This article examines endogenous cartel formation in the presence of a competition authority. Competition policy is shown to make the most inclusive stable cartels less inclusive. In particular, small firms that might have been cartel members in the absence of a competition authority are no longer members. Regarding the least inclusive stable cartels, competition policy can either decrease or increase their size and, in the latter case, the collusive price can rise.