Trust, Distrust, and Antitrust

Christopher R. Leslie, Chicago-Kent College of Law

Abstract

Cartelization is a form of a Prisoner's Dilemma. The Prisoner's Dilemma literature, both theoretical and empirical, suggests that the solution to the dilemma is mutual trust. If all of the participants trust each other not to cheat, then individuals are less likely to defect. Applying the lessons from game theory to price-fixing, the Article argues that successful cartels are those that can establish mutual trust among cartel members. Using examples from dozens of historical and recent cartels, the Article shows the various ways that cartels have tried to create trust through the adoption of trust-facilitating devices. These include, among others, personal relationships, goodwill gestures, price transparency, consistent communication, cross-ownership, interlocking directorates, and prior cartel experience. When cartels cannot establish trust, they have relied on trust substitutes - such as contracts, government regulation, or private enforcement systems, based on the monitoring and punishment of cheating - in order to maintain stable cartels. The Article argues that one mechanism by which antitrust law prevents cartelization is by sowing the seeds of distrust among cartel members. Antitrust law condemns most trust-facilitating devices and trust substitutes as illegal. In the absence of these measures, cartel members distrust each other and the Prisoner's Dilemma plays out. The Article also explains how the DOJ Antitrust Division's Leniency Guidelines create a separate Prisoner's Dilemma based on distrust among cartel members. Finally, the Article posits some of the lessons that the Distrust Model of Antitrust has for the future development of antitrust law and enforcement policies.