Raising Rivals' Costs Through Cartel Detection - Why Downstream Buyers Rather Face an Upstream Cartel than Downstream Competition
7 Pages Posted: 4 Apr 2017 Last revised: 18 Jan 2018
Date Written: April 4, 2017
This paper analyses how the endogenous detection of an upstream cartel by a down-stream buyer allows the detecting firm to raise rivals' cost. We model a market with a vertical structure, where a stable all-inclusive cartel is operating in the upstream market which provides an input to a downstream duopoly. It is assumed that one downstream firm detects the cartel, while the existence of the cartel remains unknown to its competitor. The model shows that the detecting firm can strategically use its information advantage to decrease its own cost and thereby increase its rivals cost relatively to the detecting firms' cost.
Keywords: cartel screening, antitrust, vertical market restrictions
JEL Classification: K21, L41, L42
Suggested Citation: Suggested Citation