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Covert networks and antitrust policy

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  • Roldan, Flavia

    ()
    (IESE Business School)

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    Abstract

    This paper studies the effectiveness of two different antitrust policies by characterizing the network structure of market-sharing agreements that arises under those settings. Market-sharing agreements prevent firms from entering each other's market. The set of these agreements defines a collusive network, which is pursued by antitrust authorities. This article shows that under a constant probability of inspection and a penalty equal to a firm's limited liability, firms form collusive alliances where all of them are interconnected. In contrast, when the antitrust policy reacts to prices in both dimensions - probability of inspection and penalty - firms form collusive cartels where they are not necessarily fully interconnected. This implies that more competitive structures can be sustained in the second case than in the first case. Notwithstanding, antitrust laws may have a pro-competitive effect in both scenarios, as they give firms in large alliances more incentives to cut their agreements at once.

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    Bibliographic Info

    Paper provided by IESE Business School in its series IESE Research Papers with number D/932.

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    Length: 41 pages
    Date of creation: 07 Jul 2011
    Date of revision:
    Handle: RePEc:ebg:iesewp:d-0932

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    Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
    Web page: http://www.iese.edu/
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    Related research

    Keywords: market-sharing; economic networks; antitrust authority; oligopoly;

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    14. Goyal, Sanjeev & Joshi, Sumit, 2003. "Networks of collaboration in oligopoly," Games and Economic Behavior, Elsevier, vol. 43(1), pages 57-85, April.
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