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

Author

Listed:
  • Andrey Shastitko

    (Lomonosov Moscow State University, Moscow, Russia)

  • Claude Ménard

    (Centre d’Economie de la Sorbonne, Université Paris 1 Panthéon-Sorbonne, Paris, France)

  • Natalia Pavlova

    (Lomonosov Moscow State University, Moscow, Russia)

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.

Suggested Citation

  • Andrey Shastitko & Claude Ménard & Natalia Pavlova, 2018. "The curse of antitrust facing bilateral monopoly: Is regulation hopeless?," Russian Journal of Economics, ARPHA Platform, vol. 4(2), pages 175-196, June.
    • Handle: RePEc:arh:jrujec:v:4:y:2018:i:2:p:175-196
    DOI: 10.3897/j.ruje.4.27031
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    References listed on IDEAS

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    Cited by:

    1. Shastitko, Andrey Ye. (Шаститко, Андрей) & Pavlova, Natalia S. (Павлова, Наталья), 2018. "Wide Prospects and Ravines of Competition Policy [Широкие Перспективы И Овраги Конкурентной Политики]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 110-133, October.

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    More about this item

    Keywords

    antitrust policy; bilateral monopoly; hybrid governance; switching costs; critical transactions; bargaining power.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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