Covert Networks and Antitrust Policy

41 Pages Posted: 22 Oct 2011

See all articles by Flavia Roldan

Flavia Roldan

Public-Private Sector Research Center, IESE Business

Date Written: July 1, 2011

Abstract

This paper studies the effectiveness of two different antitrust policies by characterizing the network structure of market-sharing agreements that arises under those settings. Market-sharing agreements prevent firms from entering each other's market. The set of these agreements defines a collusive network, which is pursued by antitrust authorities. This article shows that under a constant probability of inspection and a penalty equal to a firm's limited liability, firms form collusive alliances where all of them are interconnected. In contrast, when the antitrust policy reacts to prices in both dimensions - probability of inspection and penalty - firms form collusive cartels where they are not necessarily fully interconnected. This implies that more competitive structures can be sustained in the second case than in the first case. Notwithstanding, antitrust laws may have a pro-competitive effect in both scenarios, as they give firms in large alliances more incentives to cut their agreements at once.

Keywords: market-sharing, economic networks, antitrust authority, oligopoly

JEL Classification: D43, K21, L41

Suggested Citation

Roldan, Flavia, Covert Networks and Antitrust Policy (July 1, 2011). IESE Business School Working Paper No. 932. Available at SSRN: https://ssrn.com/abstract=1947273 or http://dx.doi.org/10.2139/ssrn.1947273

Flavia Roldan (Contact Author)

Public-Private Sector Research Center, IESE Business ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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