Re-Pricing Through Disruption in Oligopolies with Tacit Collusion: A Framework for Abuse of Collective Dominance

Abstract

This paper proposes an understanding of abuse of collective dominance or shared monopolization that does not outlaw oligopolistic tacit collusion as such, but that reputes abusive a set of tactics adopted by tacitly colluding oligopolists exposed to disruption. As much as deviation is an internal force likely to undermine tacit collusion, disruption is a powerful external force that can cause a return to the competitive equilibrium. The sources of disruption may be technological (eg radical innovation), economic (eg entry of a low-cost player) or legal (eg tax reform). But disruption may never deliver its pro-competitive promises if oligopolists tinker to restore a collusive equilibrium. This paper suggests that competition agencies (“agencies”) could use the dormant doctrine of abuse of collective dominance to illegalize oligopolists’ conduct that seeks to “re-price” through disruption, and elude its pro-competitive effect. This rationalized definition of abuse of collective dominance would both promote legal certainty by clarifying the messy state of the law in this field, and ensure economic efficiency by giving agencies a market-triggered ex post remedy in mature oligopolies with lethargic M&A activity.

This paper is divided in IV sections. First, it explains the case for more ex post enforcement in oligopolistic markets with tacit collusion (I). Second, it describes how disruption can undermine tacit collusion, and what oligopolists can do to overcome the competitive effect of disruption (II). Third, it discusses the pros and cons of this approach through the error costs framework initially delineated by Easterbrook (III). Fourth, it skims through EU cases decided at Member State level, to gain a better understanding of the existing antitrust policies on collective dominance (IV).

Keywords: tacit collusion, oligopoly, abuse, dominance, disruption, article 102, shared monopolization, type I and II errors, price signalling

JEL Classification: K00, K20, K21, K40, K42, L40, L41