Multi-Market Collusion with Demand Linkages and Antitrust Enforcement

32 Pages Posted: 29 Apr 2009  

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

Multiple version iconThere are 2 versions of this paper

Date Written: April 2009

Abstract

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.

Keywords: cartel formation, demand linkage, antitrust enforcement

JEL Classification: L13, L41, D43

Suggested Citation

Choi, Jay Pil and Gerlach, Heiko A., Multi-Market Collusion with Demand Linkages and Antitrust Enforcement (April 2009). CESifo Working Paper Series No. 2632. Available at SSRN: https://ssrn.com/abstract=1396614

Jay Pil Choi (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-353-7281 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Heiko A. Gerlach

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

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