When is an Antitrust Authority not Aggressive Enough in Fighting Cartels?∗†

If an antitrust authority chooses an enforcement policy to maximize the number of successfully prosecuted cartels, when does that policy minimize the number of cartels that form? When the detection and prosecution of cartels is inherently difficult, we find that an antitrust authority’s policy minimizes the number of cartels, as is socially desirable. But when the detection and prosecution of cartels is not too difficult, an antitrust authority is not aggressive enough in that it prosecutes too few cartel cases. ∗By the time I came out of graduate school in 1984, almost all of what I knew about oligopoly theory came from Jim Friedman’s masterpiece, Oligopoly and the Theory of Games. Few books offer such clarity, rigor, and seriousness about the enterprise of theoretical research. Then, as an eager but immature IO theorist, I visited Jim Friedman at UNC in Spring 1987. During my semester-long stay, we discussed many research topics but, most importantly, Jim patiently conveyed the distinction between cranking out papers and performing meaningful research. I am forever grateful to Jim for pointing my research career in the right direction. †I appreciate the thoughtful and constructive comments of the referee, and gratefully acknowledge the support of the National Science Foundation (SES-0516943).