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Motivating Collusion

Author

Listed:
  • Sangeun Ha

    (The Hong Kong University of Science and Technology)

  • Fangyuan Ma

    (Peking University HSBC Business School)

  • Alminas Žaldokas

    (The Hong Kong University of Science and Technology)

Abstract

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.

Suggested Citation

  • Sangeun Ha & Fangyuan Ma & Alminas Žaldokas, 2021. "Motivating Collusion," HKUST CEP Working Papers Series 202108, HKUST Center for Economic Policy.
    • Handle: RePEc:hke:wpaper:wp2021-08
    as

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    File URL: https://cep.hkust.edu.hk/sites/cep.prod01.ust.hk/files/publications_media/full_paper/WP%202021-08_0.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Product Market Collusion; Corporate Governance; Managerial Compensation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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