Collusion in Markets with Syndication

Posted: 26 Jul 2017 Last revised: 4 Jun 2018

See all articles by John William Hatfield

John William Hatfield

University of Texas at Austin

Scott Duke Kominers

Harvard University

Richard Lowery

University of Texas-Austin

Jordan M. Barry

University of San Diego School of Law

Date Written: May 30, 2018

Abstract

Many markets, including the markets for IPOs and debt issuances, are syndicated, in that a bidder who wins a contract will often invite competitors to join a syndicate that will fulfill the contract. We model syndicated markets as a repeated extensive form game and show that standard intuitions from industrial organization can be reversed: Collusion may become easier as market concentration falls, and market entry may in fact facilitate collusion. In particular, price collusion can be sustained by a strategy in which firms refuse to join the syndicate of any firm that deviates from the collusive price, thereby raising total production costs. Our results can thus rationalize the apparently contradictory empirical facts that the market for IPO underwriting exhibits seemingly collusive pricing despite its low level of market concentration.

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

JEL Classification: D43, L13, G24, L4

Suggested Citation

Hatfield, John William and Kominers, Scott Duke and Lowery, Richard and Barry, Jordan, Collusion in Markets with Syndication (May 30, 2018). Harvard Business School Entrepreneurial Management Working Paper No. 18-009; San Diego Legal Studies Paper No. 18-349. Available at SSRN: https://ssrn.com/abstract=3007819 or http://dx.doi.org/10.2139/ssrn.3007819

John William Hatfield

University of Texas at Austin ( email )

Austin, TX 78712
United States

Scott Duke Kominers (Contact Author)

Harvard University ( email )

Rock Center
Harvard Business School
Boston, MA 02163
United States

HOME PAGE: http://www.scottkom.com/

Richard Lowery

University of Texas-Austin ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Jordan Barry

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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