Collusion in Markets with Syndication

Abstract

Many markets, including markets for IPOs and debt issuances, are syndicated: each winning bidder invites competitors to join its syndicate to complete production. Using repeated extensive form games, we show that collusion in syndicated markets may become easier as market concentration falls, and that market entry may facilitate collusion. In particular, firms can sustain collusion by refusing to syndicate with any firm that undercuts the collusive price (and thereby raising that firm’s production costs). Our results can thus rationalize the paradoxical empirical observations that the IPO underwriting market exhibits seemingly collusive pricing despite low levels of market concentration.

Keywords: Collusion, Antitrust, IPO underwriting, Syndication, Repeated games

JEL Classification: D43, L13, G24, L4