Degree of product differentiation, antitrust enforcement and cartel stability

Abstract

This paper examines the effect of antitrust enforcement on the stability of the quantity-setting cartel at different levels of horizontal product differentiation. We derive an incentive compatibility constraint that allows us to examine the effect of antitrust enforcement on cartel stability at different levels of horizontal product differentiation. We verified that both the antitrust enforcement and the degree of product differentiation affect cartel stability. We found that the relationship between the degree of product differentiation and cartel stability is increasing—if the products are more homogeneous, the cartel is less stable. Next, we prove that antitrust enforcement is more efficient (that is, its impacts more intense) in destabilizing the cartel if its products are highly differentiated, i.e., the cartel under antitrust enforcement is more stable when its products tend to be homogeneous.