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Of course Collusion Should be Prosecuted. But Maybe... Or (The case for international antitrust agreements)

Author

Listed:
  • Filomena Garcia

    (Indiana University, & UECE)

  • Jose Manuel Paz y Minõ

    (Indiana University)

  • Gustavo Torrens

    (Indiana University)

Abstract

We study the incentives of competition authorities to prosecute collusive practices of domestic and foreign firms. For that purpose, we develop a model of multi-market contact between two firms that can engage in collusion in two countries. In each country, there is a competition authority with a mandate to maximize national welfare. Each competition authority decides its prosecution policy at the beginning of time and commits to it. In equilibrium, the ownership distribution of the firms (domestic versus foreign) affects prosecution policies. The country that does not own the firms prosecutes them as soon as information of collusion becomes available. On the contrary, the country that owns the firms has an incentive to protect their profits in foreign markets delaying prosecution. This strategic delay is valuable because it contains the information spreading that could trigger prosecution in the foreign country. Prosecution delays, however, are not optimal from the point of view of global welfare, something that could be solved through the integration of the competition authorities. The country of origin of the firms would nevertheless oppose integration. Finally, in a multi-industry setting, both countries delay prosecuting domestic firms, which again is not optimal from the point of view of global welfare. Moreover, in a multi-industry setting, both countries can be better off under integration.

Suggested Citation

  • Filomena Garcia & Jose Manuel Paz y Minõ & Gustavo Torrens, 2018. "Of course Collusion Should be Prosecuted. But Maybe... Or (The case for international antitrust agreements)," GEE Papers 00104, Gabinete de Estratégia e Estudos, Ministério da Economia, revised May 2018.
  • Handle: RePEc:mde:wpaper:0104
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    File URL: https://www.gee.gov.pt//RePEc/WorkingPapers/GEE_PAPERS_104.pdf
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    More about this item

    Keywords

    Multi-market Collusion; Antitrust Policy; Strategic Prosecution; International Antitrust Agreements;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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