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Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels

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Author Info
David BARTOLINI ([n.a.])
Alberto ZAZZARO () (Universita' Politecnica delle Marche, Dipartimento di Economia)

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Abstract

A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the Authority in charge is constrained by limited resources and imperfect information. However, few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the social optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and equilibrium binding agreements. Then we extend the analysis to the case of n symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.

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File URL: http://dea2.univpm.it/quaderni/pdf/325.pdf
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Publisher Info
Paper provided by Universita' Politecnica delle Marche (I), Dipartimento di Economia in its series Working Papers with number 325.

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Length: 29
Date of creation: Jul 2008
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Handle: RePEc:anc:wpaper:325

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Related research
Keywords: antitrust policy; coalition formation; collusive cartels;

Other versions of this item:

Find related papers by JEL classification:
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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This page was last updated on 2009-11-26.

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