Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, April 14, 2021

Not from Concentrate: Collusion in Collaborative Industries

Not from Concentrate: Collusion in Collaborative Industries

Jordan M. Barry

University of San Diego School of Law

John William Hatfield

University of Texas at Austin

Scott Duke Kominers

Harvard University

Richard Lowery

University of Texas-Austin

Abstract

It is a core principle of antitrust law and theory that reduced market concentration lowers the risk of anticompetitive behavior. We demonstrate that this principle is fundamentally incomplete.

Traditional models assume that firms interact only as competitors. We examine and model “Collaborative Industries,” which afford rival firms opportunities to meaningfully collaborate. For example, in some industries, firms compete to win business, but then work together to complete production (e.g., through subcontracting). Firms in Collaborative Industries have powerful ways to reward or punish each other beyond raising or lowering the prices they offer to customers. These mechanisms create much greater scope for collusion than economic models conventionally recognize.

We show that Collaborative Industries can sustain anticompetitive collusive behavior no matter how unconcentrated the industry becomes. In some instances, lower market concentration makes collusion easier; smaller firms may be more dependent on collaboration with rivals and thus may be easier to punish if they undercut collusion. These results run directly counter to the conventional wisdom, gleaned from models of non-Collaborative Industries, that permeates antitrust law.

https://lawprofessors.typepad.com/antitrustprof_blog/2021/04/not-from-concentrate-collusion-in-collaborative-industries.html

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