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Endogenous Mergers and Collusion in Asymmetric Market Structures

 |  November 2, 2012

Posted by D. Daniel Sokol

Mattias Ganslandt (Centre for European Law and Economics, Research Institute of Industrial Economics, University of Colorado at Boulder), Lars Persson (Research Institute of Industrial Economics, Centre for Economic Policy Research), and Helder Vasconcelos (University of Bocconi – Innocenzo Gasparini Institute for Economic Research) explore Endogenous Mergers and Collusion in Asymmetric Market Structures

ABSTRACT: Recent empirical evidence shows that cartels are often asymmetric, while cartel theory suggests that firm symmetry is conducive to collusion. Including an indivisible cost of cartelization, we show that medium asymmetric market structures are more conducive to collusion, since they balance the small firms’ incentives to stay in the cartel against the need to cover the cartel leaders’ indivisible cartelization cost. Using an endogenous merger model, we also show that forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with a higher risk of collusion. Current antisymmetry merger policy can thus be counterproductive.