Unilateral versus Coordinated Effects: Comparing the Impact on Consumer Welfare of Alternative Merger Outcomes

Matthew Olczak
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Matthew Olczak: Centre for Competition Policy, University of East Anglia

No 2010-03, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.

Abstract: The nature of tacitly collusive behaviour often makes coordination unstable, and this may result in periods of breakdown, during which consumers benefit from reduced prices. This is allowed for by adding demand uncertainty to the Compte et al. (2002) model of tacit collusion amongst asymmetric firms. Breakdowns occur when a firm cannot exclude the possibility of a deviation by a rival. It is then possible that an outcome with collusive behaviour, subject to long/frequent break downs, can improve consumer welfare compared to an alternative with sustained unilateral conduct. This is illustrated by re-examining the Nestle/Perrier merger analyzed by Compte et al., but now also taking into account the potential for welfare losses arising from unilateral behaviour.

Keywords: Tacit collusion; collective dominance; coordinated effects; unilateral effects; merger policy. (search for similar items in EconPapers)
JEL-codes: L13 L41 (search for similar items in EconPapers)
Date: 2010-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:uea:ueaccp:2010_03

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