In antitrust analysis it is generally agreed that a small number of firms operating in the industry is an essential precondition for collusive behavior to be sustainable. However, the Italian Competition Authority (AGCM) challenged this view in the recent case RCA (2000), when an information exchange among forty-four firms in the car insurance market was assessed as having an anticompetitive object. The AGCM’s basic argument was that an information exchange facilitates collusion because it changes the market environment in such a way as to relax the incentive compatibility constraint for collusion, thus circumventing the decrease in the critical discount factor when the number of firms in the industry increases. In this paper we model collusive behavior in a “dispersed” oligopoly. We prove that, when the technology exhibits decreasing returns to scale, collusion can always be sustained, regardless of the number of firms, provided the marginal cost function is sufficiently steep. Moreover, we show how an information exchange can sustain collusive behavior when the number of firms is “large” independently of the assumptions on technology.
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