Unilateral Versus Coordinated Effects: Comparing the Impact on Consumer Welfare of Alternative Merger Outcomes

ESRC Centre for Competition Policy Working Paper 10-3

53 Pages Posted: 28 Jan 2010

Date Written: October 1, 2009

Abstract

The nature of tacitly collusive behaviour often makes coordination unstable, and this may result in periods of breakdown, during which consumers benefit from reduced prices. This is allowed for by adding demand uncertainty to the Compte et al. (2002) model of tacit collusion amongst asymmetric firms. Breakdowns occur when a firm cannot exclude the possibility of a deviation by a rival. It is then possible that an outcome with collusive behaviour, subject to long/frequent break downs, can improve consumer welfare compared to an alternative with sustained unilateral conduct. This is illustrated by re-examining the Nestle/Perrier merger analyzed by Compte et al., but now also taking into account the potential for welfare losses arising from unilateral behaviour.

Keywords: Tacit collusion, collective dominance, coordinated effects, unilateral effects, merger policy

JEL Classification: L13, L41

Suggested Citation

Olczak, Matt, Unilateral Versus Coordinated Effects: Comparing the Impact on Consumer Welfare of Alternative Merger Outcomes (October 1, 2009). ESRC Centre for Competition Policy Working Paper 10-3, Available at SSRN: https://ssrn.com/abstract=1543750 or http://dx.doi.org/10.2139/ssrn.1543750

Matt Olczak (Contact Author)

University of East Anglia ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

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