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Fight Cartels or Control Mergers? On the Optimal Allocation of Enforcement Efforts within Competition Policy

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  • Andreea Cosnita-Langlais
  • Jean-Philippe Tropeano

Abstract

This paper deals with the optimal enforcement of the competition law between the merger and anti-cartel policies. We examine the interaction of these two branches of the competition policy given the budget constraint of the competition agency and taking into account the ensuing incentives for firms’ behavior in terms of choice between cartels and mergers. We are thus able to conclude on the optimal competition policy mix. We show for instance that to the extent that a tougher anti-cartel action triggers more mergers taking place, the public agency will optimally invest only in control fighting for a tight budget, and then in both instruments as soon as the budget is no longer tight. However, if the merger’s coordinated effect is taken into account, then when resources are scarce the agency may optimally have to spend first on controlling mergers before incurring the cost of fighting cartels.

Suggested Citation

  • Andreea Cosnita-Langlais & Jean-Philippe Tropeano, 2011. "Fight Cartels or Control Mergers? On the Optimal Allocation of Enforcement Efforts within Competition Policy," EconomiX Working Papers 2011-18, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2011-18
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    References listed on IDEAS

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    1. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
    2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    3. Lars Sørgard, 2009. "Optimal Merger Policy: Enforcement Vs. Deterrence," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 438-456, September.
    4. Cécile Aubert & Jérôme Pouyet, 2004. "Competition policy, regulation and the institutional design of industry supervision," Recherches économiques de Louvain, De Boeck Université, vol. 70(2), pages 153-168.
    5. Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
    6. Simon J. Evenett & Margaret C. Levenstein & Valerie Y. Suslow, 2001. "International Cartel Enforcement: Lessons from the 1990s," The World Economy, Wiley Blackwell, vol. 24(9), pages 1221-1245, September.
    7. Bittlingmayer, George, 1985. "Did Antitrust Policy Cause the Great Merger Wave?," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 77-118, April.
    8. Dennis Mueller, 1996. "Antimerger policy in the United States: History and lessons," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(3), pages 229-253, October.
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    Cited by:

    1. Pedro P. Barros & Steffen Hoernig & Tore Nilssen, 2015. "Transversal Agency and Crowding Out," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(4), pages 589-608, December.
    2. Boris Begović & Dušan Popović, 2019. "Merger Control and Economic Growth of LDCs: Some Observations and Recommendations," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(2), pages 381-408, March.
    3. Hüschelrath, Kai & Smuda, Florian, 2013. "Do cartel breakdowns induce mergers? Evidence from EC cartel cases," ZEW Discussion Papers 13-036, ZEW - Leibniz Centre for European Economic Research.
    4. Koski, Heli & Pajarinen, Mika, 2013. "Empirical Evaluation of the Effectiveness of Competition Policy," ETLA Working Papers 15, The Research Institute of the Finnish Economy.
    5. Stephen Davies & Peter Ormosi & Martin Graffenberger, 2015. "Mergers after cartels: How markets react to cartel breakdown," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    6. Tim Reuter, 2017. "Endogenous Cartel Organization and Antitrust Fine Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(3), pages 291-313, November.
    7. Robert M. Feinberg, 2016. "Anti-cartel enforcement and subsequent mergers: state-level evidence for physician groups," Economics Bulletin, AccessEcon, vol. 36(1), pages 365-372.
    8. Filomena Garcia & Jose Manuel Paz y Miño & Gustavo Torrens, 2020. "The merger paradox, collusion, and competition policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 2051-2081, December.
    9. Stephen Davies & Peter L. Ormosi & Martin Graffenberger, 2014. "Mergers after cartels: How markets react to cartel breakdown," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2014-01, Centre for Competition Policy, University of East Anglia, Norwich, UK..

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    More about this item

    Keywords

    competition law enforcement; antitrust; merger control; anti-cartel policy;
    All these keywords.

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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