Collusion, Managerial Incentives and Antitrust Fines

Based on a price setting duopoly model, this paper argues that collusion on managerial incentive compensation may have the equivalent effect to collusion on prices. This paper also provides an analysis of the effect of different antitrust fines regimes in the context of a game between two companies each composed of two-level of decision making (the board of directors and the sales manager). The contribution of this paper is two-fold: it identifies "backstage arrangements" that may be used by companies in order to achieve monopoly outcome without entering into explicit price-fixing practices. It also highlights the inefficiency of fining regimes based on sales when companies have a multi-layer decision-making structure