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Mergers and collusion with asymmetric capacities

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  • Emilie Dargaud

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Abstract

When it examines the risk of coordinated effects, an antitrust authority will usually compare the situation where the merger is accepted with an attendant risk of collusion with the benchmark case in which competition is present ex-post. The main objective of this paper is to show that the antitrust authority must take into account the possibility for firms to collude if a merger is rejected. In fact, firms can have incitations to make collusion ex-post (after a rejection of a merger) whereas they would not make collusion ex-ante. All the papers on mergers and collusion tend to look at a minimal discount factor threshold for collusion to be sustained. This article does not only suggest necessary and sufficient conditions for collusion to be enforced but it also analyses the choice which firms have as to whether to collude. We consider an industry with cost-asymmetric firms and we study the analysis of collusion under leniency programmes.

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Paper provided by HAL in its series Post-Print with number halshs-00142435.

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Date of creation: Mar 2007
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Handle: RePEc:hal:journl:halshs-00142435

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Keywords: leniency programme ; merger ; oligopoly supergame;

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  1. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, Elsevier, vol. 39(1), pages 191-225, June.
  3. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 219-27, March.
  4. Motta, Massimo & Polo, Michele, 2000. "Leniency Programs and Cartel Prosecution," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2349, C.E.P.R. Discussion Papers.
  5. Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, Elsevier, vol. 46(1), pages 1-29, January.
  6. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 17(5), pages 717-734, July.
  7. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 185-99, May.
  8. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  9. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(2), pages 181-87, June.
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