Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels

30 Pages Posted: 15 May 2008 Last revised: 25 Aug 2008

David Bartolini

Università Politecnica delle Marche

Alberto Zazzaro

Università Politecnica delle Marche - Faculty of Economics

Date Written: July 1, 2008

Abstract

A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the Authority in charge is constrained by limited resources and imperfect information. However, few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the social optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and equilibrium binding agreements. Then we extend the analysis to the case of n symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.

Keywords: Coalition formation, Collusive cartels, Antitrust policy

JEL Classification: C70, L40, L41

Suggested Citation

Bartolini, David and Zazzaro, Alberto, Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels (July 1, 2008). Available at SSRN: https://ssrn.com/abstract=1133098 or http://dx.doi.org/10.2139/ssrn.1133098

David Bartolini (Contact Author)

Università Politecnica delle Marche ( email )

Piazzale Martelli, 8
Ancona, 60121
Italy
+390712207176 (Phone)

HOME PAGE: http://utenti.dea.univpm.it/bartolini

Alberto Zazzaro

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

Paper statistics

Downloads
119
Rank
196,796
Abstract Views
552