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Multi-Market Collusion with Demand Linkages and Antitrust Enforcement

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  • Jay Pil Choi
  • Heiko Gerlach

Abstract

This paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand-related markets. We show that cartel prosecution can have a knock-on effect: desisting a cartel in one market reduces profits and cartel stability and leads to the break-up of the cartel in the adjacent market. Cartel prosecution can also have a waterbed effect: desisting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets. We also consider policy implications of our analysis regarding an antitrust authority's investment decision in cartel enforcement.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-04/cesifo1_wp2632.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2632.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2632

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Related research

Keywords: cartel formation; demand linkage; antitrust enforcement;

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References

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  1. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion?," PIER Working Paper Archive 03-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Catherine ROUX & Thomas VON UNGERN-STERNBERG, 2007. "Leniency Programs in a Multimarket Setting: Amnesty Plus and Penalty Plus," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 07.03, Université de Lausanne, Faculté des HEC, DEEP.
  3. Joseph E. Harrington, Jr., 2003. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Computing in Economics and Finance 2003 26, Society for Computational Economics.
  4. Joseph E. Harrington, 2005. "Optimal Cartel Pricing In The Presence Of An Antitrust Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 145-169, 02.
  5. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive 527, The Johns Hopkins University,Department of Economics.
  6. Aubert, Cecile & Rey, Patrick & Kovacic, William E., 2006. "The impact of leniency and whistle-blowing programs on cartels," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1241-1266, November.
  7. Motta, Massimo & Polo, Michele, 2000. "Leniency Programs and Cartel Prosecution," CEPR Discussion Papers 2349, C.E.P.R. Discussion Papers.
  8. Spagnolo, G., 1999. "On Interdependent Supergames: Multimarket Contact, Concavity, and Collusion," Cambridge Working Papers in Economics 9914, Faculty of Economics, University of Cambridge.
  9. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  10. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  11. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  12. Jay Pil Choi & Heiko Gerlach, 2012. "International Antitrust Enforcement And Multimarket Contact," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 635-658, 05.
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Citations

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Cited by:
  1. Yassine LEFOUILI & Catherine ROUX, 2008. "Leniency Programs for Multimarket Firms: The Effect of Amnesty Plus on Cartel Formation," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 08.05, Université de Lausanne, Faculté des HEC, DEEP.
  2. Choi, Jay Pil & Gerlach, Heiko, 2012. "Global cartels, leniency programs and international antitrust cooperation," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 528-540.
  3. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series 2692, CESifo Group Munich.

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