CARTEL PROHIBITION MAY INCREASE PRICES*

Marco Haan

Manchester School, 2007, vol. 75, issue 5, 557-568

Abstract: In this paper, we show that a policy that forbids cartels may benefit dominant firms, and hurt consumers. When cartels are prohibited, an incumbent monopolist can commit not to form a cartel should a new entrant enter the market. This reduces the entry threat, which implies that entry occurs less often, and the incumbent monopolist is less likely to set a limit price.

Date: 2007
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