The curse of antitrust facing bilateral monopoly: Is regulation hopeless?

Andrey Shastitko, Claude Ménard () and Natalia Pavlova
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Claude Ménard: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - École d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne

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Abstract: This paper is about the challenges that antitrust authorities face when dealing with bilateral monopolies. The curse of antitrust refers to traps threatening the efficient applicability of antitrust policies in these situations. Standard theories diverge about the attainability of equilibrium under bilateral monopolies but share skepticism about its efficiency if it ever exists. We suggest a different approach, based on transaction cost theory. First, since bilateral monopolies often develop in the upper segment of value chains, misalignment between parties may generate negative externalities. Second, if parties reach an agreement, the impact of the governance mechanism implemented must be assessed beyond the usual parameters of prices and quantities. Indeed, the risk of negative externalities in the absence of appropriate governance increases dramatically when "critical transactions" are at stake. With vertical integration prohibited, second-best alternatives in which antitrust authorities leave room for innovative hybrid governance may allow internalizing externalities while avoiding high switching costs.

Keywords: antitrust policy; bilateral monopoly; hybrid governance; switching costs; critical transactions; bargaining power; antitrust policy bilateral monopoly hybrid governance switching costs critical transactions bargaining power. JEL classification: D4 K21; bargaining power. JEL classification: D4; K21 (search for similar items in EconPapers)
Date: 2018-06-30
Note: View the original document on HAL open archive server: https://paris1.hal.science/hal-04011018v1
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Published in Russian Journal of Economics, 2018, 4 (2), pp.175-196. ⟨10.3897/j.ruje.4.27031⟩

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Journal Article: The curse of antitrust facing bilateral monopoly: Is regulation hopeless? (2018)
Working Paper: The curse of antitrust facing bilateral monopoly: Is regulation hopeless? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04011018

DOI: 10.3897/j.ruje.4.27031

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