Motivating Collusion

2021-07-01 Working Paper Series
HKUST CEP Working Paper No.2021-08

Photo by JESHOOTS.COM on Unsplash

We examine how executive compensation can be designed to motivate product market collusion. We look at the 2013 decision to close several regional offices of the Department of Justice, which lowered antitrust enforcement for firms located near these closed offices. We argue that this made collusion more appealing to the shareholders, and find that these firms increased the sensitivity of executive pay to local rivals' performance, consistent with rewarding the managers for colluding with them. The affected CEOs were also granted more equity compensation, which provides long-term incentives that could foster collusive arrangements.

Alminas Žaldokas
Associate Professor, Department of Finance
Professor Alminas Žaldokas is currently Associate Professor of Finance at the HKUST. He received…
Sangeun Ha
Hong Kong University of Science and Technology
Fangyuan Ma
Peking University HSBC Business School

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