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The Coordinated Effect of a Merger with Balanced Sharing of Collusive Profits

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  • Pierluigi Sabbatini

    (Italian Competition Authority)

Abstract

It is hard to assess the coordinated effect of mergers in solid and convincing fashion, in part because economic theory deals mainly with the sustainability of tacit collusion and generally does not explore the conditions that foster collusion in the first place. Also the most popular schemes of collusion (Joint profit maximization and Nash Bargaining) proposed by the economic literature seem at odds with the evidence recorded on cartels and with the practical attitude of entrepreneurs. In this scenario the recent version of the Horizontal Merger Guidelines contained the interesting suggestion to pay attention to the process - parallel behaviour – which leads to collusive equilibria. Working on the same intuition we propose an approach based on the idea that firms can always find a feasible collusive agreement, for every possible value of the factor which discounts future profits. Assuming that in order to collude, firms demand the fair sharing of collusive gains, we exploit the egalitarian property of grim trigger strategies when all incentive compatibility constraints are binding. This approach suggests using three indicators to determine whether and how a merger affects the probability of collusion. An application of this approach to a real-world case (the AT&T/T-Mobile merger) is provided.

Suggested Citation

  • Pierluigi Sabbatini, 2016. "The Coordinated Effect of a Merger with Balanced Sharing of Collusive Profits," Journal of Industry, Competition and Trade, Springer, vol. 16(3), pages 345-371, September.
    • Handle: RePEc:kap:jincot:v:16:y:2016:i:3:d:10.1007_s10842-016-0227-y
    DOI: 10.1007/s10842-016-0227-y
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    References listed on IDEAS

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    2. Porter, Robert H., 2020. "Mergers and coordinated effects," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    3. Neelanjan Sen & Priyansh Minocha & Arghya Dutta, 2023. "Technology licensing and collusion," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 694-752, September.

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    More about this item

    Keywords

    Merger control; Coordinated effect; Horizontal merger guidelines; Parallel behaviour; Grim trigger strategies; Balanced temptation equilibrium; Collusive sets;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other

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