Collusion and Confession among Japanese firms

The Fair Trades Commission (FTC) is investigating several construction firms on suspicion that they have been colluding (by sharing information and dividing up projects) in tendering for construction work on the Tokyo-Osaka maglev train line project.

If the firms have formed a cartel (even a tacit or informal one) to engage in bid-rigging (price-fixing), they are violating anti-monopoly laws and could face very large fines. But following the initial raids, one of the companies, Obayashi, reported to the FTC that it had conspired with three companies for maglev construction tenders.

Under the FTC’s leniency rules, companies voluntarily reporting antitrust violations escape a fine. The company that does so first will also avoid criminal charges.

Possibly, therefore, game theory analysis could be used to analyze what is likely to happen. Is there a dominant strategy to confess?

And a few days later, another company, Shimizu, after initially denying wrongdoing, confessed to fixing bids for construction projects. But two other firms are still maintaining their innocence. They apparently admit that officials met and exchanged information about the projects, but deny that they actually fixed bids or split the projects among them.

Nonetheless, you could still try setting up a pay-off matrix for Obayashi and Shimizu to show why they both confessed, hoping for lighter fines.


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