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How Cartels Really Work, Episode 5: The Race to Confess
Description
A leniency program appears to generate a straightforward game theory problem for cartels. Suppose some firms agree to collude. Each wants to make cartel profits, but each knows that another cartel member may go to the government first and seek leniency. So what are you waiting for?
If everyone wants to confess before everyone else, then backward induction makes the confession happen earlier and earlier. The logical prediction is surprising: the cartel should not form, in the end. But cartels do exist.
In Episode 5 of How Cartels Really Work, we examine the gap between that simple prediction and reality. We investigate why deterring is so difficult to observe, why cheating and leniency both erode trust in cartels, and what happens when a profit-maximizer AI is free to choose between competing, colluding, cheating, and seeking leniency.
The final question may be the most intriguing: Could an AI programmed to maximize profits be the perfect cartel partner—or the perfect cartel traitor?
Read the full article and graphic analysis: https://blog.econworks.com/p/cartels-episode-5-the-race-to-confess?r=562wri
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