IDEAS home Printed from https://ideas.repec.org/p/trr/wpaper/201907.html
   My bibliography  Save this paper

Optimal Destabilization of Cartels

Author

Listed:
  • Ludwig von Auer
  • Tu Anh Pham

Abstract

A model-based derivation of an effective antitrust policy requires an economic framework that includes three actors: a cartel, a group of competing fringe firms, and a welfare maximizing antitrust authority. In existing models of cartel behavior, at least one of these actors is always missing. By contrast, the present paper's oligopoly model includes all three actors. The cartel is the Stackelberg quantity leader and the fringe firms are in Cournot competition with respect to the residual demand. Taking into account that the antitrust policy instruments (effort, fine, and leniency program) are not costless for society, an optimal policy is derived.

Suggested Citation

  • Ludwig von Auer & Tu Anh Pham, 2019. "Optimal Destabilization of Cartels," Research Papers in Economics 2019-07, University of Trier, Department of Economics.
  • Handle: RePEc:trr:wpaper:201907
    as

    Download full text from publisher

    File URL: http://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2019-07.pdf
    File Function: Third version, 2019
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    2. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    3. Allain, Marie-Laure & Boyer, Marcel & Kotchoni, Rachidi & Ponssard, Jean-Pierre, 2015. "Are cartel fines optimal? Theory and evidence from the European Union," International Review of Law and Economics, Elsevier, vol. 42(C), pages 38-47.
    4. Iwan Bos & Joseph E. Harrington, 2015. "Competition Policy And Cartel Size," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 133-153, February.
    5. Motta, Massimo & Polo, Michele, 2003. "Leniency programs and cartel prosecution," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 347-379, March.
    6. repec:dau:papers:123456789/13637 is not listed on IDEAS
    7. Brito Duarte & Catalão-Lopes Margarida, 2011. "Small Fish Become Big Fish: Mergers in Stackelberg Markets Revisited," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-20, May.
    8. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics.
    9. Donsimoni, Marie-Paule, 1985. "Stable heterogeneous cartels," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 451-467, December.
    10. Hellwig, Michael & Hüschelrath, Kai, 2018. "When Do Firms Leave Cartels? Determinants And The Impact On Cartel Survival," International Review of Law and Economics, Elsevier, vol. 54(C), pages 68-84.
    11. Steffen Huck & Kai A. Konrad & Wieland Müller & Hans-Theo Normann, 2007. "The Merger Paradox and why Aspiration Levels Let it Fail in the Laboratory," Economic Journal, Royal Economic Society, vol. 117(522), pages 1073-1095, July.
    12. Mouraviev, Igor & Rey, Patrick, 2011. "Collusion and leadership," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 705-717.
    13. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
    14. Marc Escrihuela-Villar, 2009. "A note on cartel stability and endogenous sequencing with tacit collusion," Journal of Economics, Springer, vol. 96(2), pages 137-147, March.
    15. Prokop, Jacek, 1999. "Process of dominant-cartel formation," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 241-257, February.
    16. Curtis Eaton & Mukesh Eswaran, 1998. "Endogenous Cartel Formation," Australian Economic Papers, Wiley Blackwell, vol. 37(1), pages 1-13, March.
    17. 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.
    18. Iwan Bos & Joseph E. Harrington, Jr, 2010. "Endogenous cartel formation with heterogeneous firms," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 92-117, March.
    19. Joseph E. Harrington Jr, 2013. "Corporate Leniency Programs when Firms have Private Information: The Push of Prosecution and the Pull of Pre-emption," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 1-27, March.
    20. Brenner, Steffen, 2009. "An empirical study of the European corporate leniency program," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 639-645, November.
    21. Harrington, Joseph E., 2006. "How Do Cartels Operate?," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(1), pages 1-105, August.
    22. Zu, Lei & Zhang, Jin & Wang, Shouyang, 2012. "The size of stable cartels: An analytical approach," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 217-222.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. von Auer, Ludwig & Pham, Tu Anh, 2020. "Optimal Destabilization of Cartels," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224521, Verein für Socialpolitik / German Economic Association.
    2. Ludwig Auer & Tu Anh Pham, 2021. "Optimal destabilization of cartels," Journal of Regulatory Economics, Springer, vol. 59(2), pages 175-192, April.
    3. Ludwig Auer & Tu Anh Pham, 2023. "Imperfect collusion in monitored markets with free entry," Journal of Economics, Springer, vol. 140(3), pages 181-207, December.
    4. Ludwig von Auer & Tu Anh Pham, 2023. "Imperfect Collusion On Surveilled Markets With Free Entry," Research Papers in Economics 2023-05, University of Trier, Department of Economics.
    5. Hinloopen, Jeroen & Onderstal, Sander, 2014. "Going once, going twice, reported! Cartel activity and the effectiveness of antitrust policies in experimental auctions," European Economic Review, Elsevier, vol. 70(C), pages 317-336.
    6. Bartolini David & Zazzaro Alberto, 2011. "The Impact of Antitrust Fines on the Formation of Collusive Cartels," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-30, September.
    7. Odenkirchen, Johannes, 2017. "Pricing Behavior of Cartel Outsiders in Incomplete Cartels," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168309, Verein für Socialpolitik / German Economic Association.
    8. Bovin, Andreas & Bos, Iwan, 2023. "Market Shares as Collusive Marker: Evidence from the European Truck Industry," Research Memorandum 011, Maastricht University, Graduate School of Business and Economics (GSBE).
    9. Catarina Marvão & Giancarlo Spagnolo, 2018. "Cartels and leniency: Taking stock of what we learnt," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 4, pages 57-90, Edward Elgar Publishing.
    10. Panayiotis Agisilaou, 2013. "Collusion in Industrial Economics and Optimally Designed Leniency Programmes - A Survey," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2013-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    11. Pavlova, Natalia & Shastitko, Andrey, 2016. "Leniency programs and socially beneficial cooperation: Effects of type I errors," Russian Journal of Economics, Elsevier, vol. 2(4), pages 375-401.
    12. Napel, Stefan & Welter, Dominik, 2023. "Umbrella pricing and cartel size," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    13. Garrod, Luke & Olczak, Matthew, 2018. "Explicit vs tacit collusion: The effects of firm numbers and asymmetries," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 1-25.
    14. Argenton, Cédric, 2019. "Colluding on excluding," European Economic Review, Elsevier, vol. 113(C), pages 194-206.
    15. Sven Heim & Kai Hhschelrath & Ulrich Laitenberger & Yossi Spiegel, 2017. "Minority Share Acquisitions and Collusion: Evidence from the Introduction of National Leniency Programs," Working Papers hal-01952937, HAL.
    16. Mariana Cunha & Paula Sarmento, 2014. "Does Vertical Integration Promote Downstream Incomplete Collusion? An Evaluation of Static and Dynamic Stability," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 1-38, March.
    17. Johannes Paha, 2013. "The Impact of Persistent Shocks and Concave Objective Functions on Collusive Behavior," MAGKS Papers on Economics 201328, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    18. Hélder Vasconcelos, 2008. "Sustaining Collusion in Growing Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(4), pages 973-1010, December.
    19. Iwan Bos & Joseph E. Harrington, 2015. "Competition Policy And Cartel Size," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(1), pages 133-153, February.
    20. Iwan Bos & Joseph E. Harrington, Jr, 2010. "Endogenous cartel formation with heterogeneous firms," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 92-117, March.

    More about this item

    Keywords

    antitrust; stability; Cournot fringe; oligopoly; leniency;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:trr:wpaper:201907. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Matthias Neuenkirch (email available below). General contact details of provider: https://edirc.repec.org/data/petride.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.