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2009 | OriginalPaper | Buchkapitel

11. The Anticompetitive Effects of the Antitrust Policy

verfasst von : David Bartolini, Alberto Zazzaro

Erschienen in: The Economics of Imperfect Markets

Verlag: Physica-Verlag HD

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Abstract

Few scholars have seriously considered the possibility that the very existence of an antitrust law might make markets less competitive. In this chapter, we provide a selective review of this thought-provoking literature. The focus of our analysis is on contributions within the limits of the neo-classical theory of firms and markets, pointing out that antitrust legislation can hinder price/output competition. Following this literature, the introduction of antitrust penalties or leniency programmes can have the perverse effect of stabilizing cartels and increasing their size, as these policies may raise the costs of deviating and/or renegotiating a collusive agreement.

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Vorheriges Kapitel Investment and Trade Patterns in a Sticky-Price, Open-Economy Model

See Posner (1976), Bork (1978), Sproul (1993), Crandall and Winston (2003), and Levenstein and Suslow (2006). A broad, updated review of the economic theory of competition policy is provided by Motta (2004).

The absolute irreconcilability between free capitalism and antitrust legislation in the libertarian tradition is well summarized by Walter Block: “The premise underlying laissez-faire capitalism is that the only actions which should be illegal are those which involve an initiation of aggression against another person or his property. Antitrust law is clearly in violation of this principle, because it prohibits business practices no one even alleges constitute such depredations.” (Block 1994, p. 35).

The collusive profit does not necessarily derive from monopoly pricing; it depends on the price level firms in the cartel decide to enforce.

The function ψ(p) defines the deviating price which maximizes the firm’s profit given that all the other firms’ price is p.

In the original model, Harrington (2004) assumes that the penalty also consists of a compensative part X ^t, proportional to the social welfare losses produced by collusion, which increase with the current collusive price and the duration of the cartel.

The result that the antitrust penalty reduces competition only when the original price is lower than the monopolistic price, is mirrored by a similar condition in Bartolini and Zazzaro (2008), where in order to have the perverse effect the market structure without antitrust should not be a monopolistic cartel. We postpone further discussion on this point after the introduction of Bartolini and Zazzaro’s model.

See Ray (2007) for an introduction to this literature.

GCS is a weaker version of superadditivity, as it only requires the firms’ payoff vector in the grand coalition (the monopolistic cartel) to be larger than the payoff vector of firms in any other coalition structure. Formally, given N players, for every state \(x = (\pi, \mathcal{P})\), there is \(x^{{\prime}} = (\pi ^{{\prime}},\,\{N\})\) such that \(\pi ^{{\prime}} \geq \pi \), where {N} is the grand coalition, \(\mathcal{P}\) is any coalition structure, and π is the firms’ payoff vector (Ray 2007, p. 192).

Under stricter conditions, this result can be extended to the case of asymmetric firms (Bartolini and Zazzaro 2008).

For a definition of coalition games, see Ray (2007).

This example was first studied by Ray and Vohra (1997) and then revisited in Bartolini and Zazzaro (2008).

This is not a restriction as Ray and Vohra (1997) show that the equal division of the coalition worth arises in any equilibrium of a coalition formation game with symmetric players.

Since players are symmetric, we can omit coalition structures that are just a permutation of players in the same coalition structure.

Actually the singleton coalition structure, \({\mathcal{P}}^{{_\ast}}\), is always an EBA by definition; firms should not select this equilibrium, however, if there is another which gives all of them a higher payoff.

Obviously, if we apply a different concept of stability the coalition structure prevailing in equilibrium can be different. For example, using the sequential formation model proposed by Bloch (1996), the equilibrium of the game is coalition structure \({\mathcal{P}}_{2}\), that still consists of a partial cartel, leaving unaltered the possibility of the antitrust penalty generating anticompetitive effects.

In the US, unlike Europe, price fixing is a criminal offense.

This perverse effect is also discussed by Buccirossi and Spagnolo (2006), who apply a similar framework to a model of illegal trade.

In Spagnolo’s model only duopolistic Bertrand competition is considered.

In antitrust laws, however, it is common to introduce some elements of proportionality in penalty schemes.

Bartolini D, Zazzaro A (2008) Are antitrust fines friendly to competition? An endogenous coalition formation approach to collusive cartels. SSRN elibrary

Besanko D, Spulber DF (1989) Antitrust enforcement under asymmetric information. Econ J 99(396):408–425CrossRef

Bloch F (1996) Sequential formation of coalitions in games with externalities and fixed payoff division. Games Econ Behav 14:90–123CrossRef

Block W (1994) Total repeal of antitrust legislation: A critique of bork, brozen, and posner. Rev Aust Econ 8(1):35–70CrossRef

Bork RH (1978) The antitrust paradox: a policy at war with itself. Basic Book, New York

Buccirossi P, Spagnolo G (2006) Leniency policies and illegal transactions. J Publ Econ 90(6–7): 1281–1297CrossRef

Coase RH (1937) The nature of the firm. Econ 4(16):386–405

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Titel: The Anticompetitive Effects of the Antitrust Policy
verfasst von: David Bartolini
Alberto Zazzaro
Verlag: Physica-Verlag HD
Buch: The Economics of Imperfect Markets
Print ISBN: 978-3-7908-2130-7

Electronic ISBN: 978-3-7908-2131-4

Copyright-Jahr: 2009
DOI: https://doi.org/10.1007/978-3-7908-2131-4_11

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