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Covert networks and antitrust policy

Flavia Roldán

No D/932, IESE Research Papers from IESE Business School

Abstract: This paper studies the effectiveness of two different antitrust policies by characterizing the network structure of market-sharing agreements that arises under those settings. Market-sharing agreements prevent firms from entering each other's market. The set of these agreements defines a collusive network, which is pursued by antitrust authorities. This article shows that under a constant probability of inspection and a penalty equal to a firm's limited liability, firms form collusive alliances where all of them are interconnected. In contrast, when the antitrust policy reacts to prices in both dimensions - probability of inspection and penalty - firms form collusive cartels where they are not necessarily fully interconnected. This implies that more competitive structures can be sustained in the second case than in the first case. Notwithstanding, antitrust laws may have a pro-competitive effect in both scenarios, as they give firms in large alliances more incentives to cut their agreements at once.

Keywords: market-sharing; economic networks; antitrust authority; oligopoly (search for similar items in EconPapers)
JEL-codes: D43 K21 L41 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2011-07-07
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-net and nep-reg
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Working Paper: Covert networks and the antitrust policy (2012) Downloads
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