Multi-Market Collusion with Demand Linkages and Antitrust Enforcement
Jay Pil Choi
Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
Heiko A. Gerlach
University of Queensland - School of Economics
CESifo Working Paper Series No. 2632
This paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand-related markets. We show that cartel prosecution can have a knock-on effect: desisting a cartel in one market reduces profits and cartel stability and leads to the break-up of the cartel in the adjacent market. Cartel prosecution can also have a waterbed effect: desisting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets. We also consider policy implications of our analysis regarding an antitrust authority's investment decision in cartel enforcement.
Number of Pages in PDF File: 32
Keywords: cartel formation, demand linkage, antitrust enforcement
JEL Classification: L13, L41, D43
Date posted: April 29, 2009
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