Not from Concentrate: Collusion in Collaborative Industries

75 Pages Posted: 23 Feb 2021 Last revised: 24 Apr 2021

See all articles by Jordan M. Barry

Jordan M. Barry

University of San Diego School of Law

John William Hatfield

University of Texas at Austin

Scott Duke Kominers

Harvard University

Richard Lowery

University of Texas-Austin

Date Written: February 17, 2021

Abstract

It is a core principle of antitrust law and theory that reduced market concentration lowers the risk of anticompetitive behavior. We demonstrate that this principle is fundamentally incomplete.

Traditional models assume that firms interact only as competitors. We examine and model “Collaborative Industries,” which afford rival firms opportunities to meaningfully collaborate. For example, in some industries, firms compete to win business, but then work together to complete production (e.g., through subcontracting). Firms in Collaborative Industries have powerful ways to reward or punish each other beyond raising or lowering the prices they offer to customers. These mechanisms create much greater scope for collusion than economic models conventionally recognize.

We show that Collaborative Industries can sustain anticompetitive collusive behavior no matter how unconcentrated the industry becomes. In some instances, lower market concentration makes collusion easier; smaller firms may be more dependent on collaboration with rivals and thus may be easier to punish if they undercut collusion. These results run directly counter to the conventional wisdom, gleaned from models of non-Collaborative Industries, that permeates antitrust law.

Keywords: Antitrust, antitrust law, antitrust theory, law and economics, collusion, collaboration, collaborative industries, regulation, game theory, repeated games, IPOs, initial public offerings, underwriters, real estate, real estate agents, realtors, syndicated markets, syndication, brokers

JEL Classification: K21, L41, L13, D43, L11

Suggested Citation

Barry, Jordan and Hatfield, John William and Kominers, Scott Duke and Lowery, Richard, Not from Concentrate: Collusion in Collaborative Industries (February 17, 2021). San Diego Legal Studies Paper No. 21-007, Available at SSRN: https://ssrn.com/abstract=3787280 or http://dx.doi.org/10.2139/ssrn.3787280

Jordan Barry (Contact Author)

University of San Diego School of Law ( email )

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

John William Hatfield

University of Texas at Austin ( email )

Austin, TX 78712
United States

Scott Duke Kominers

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

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