Presentation ACLE – 14 March 2011 – N Petit

39 Pages·2011·0.39 MB·English

The « Oligopoly Problem »:
Beyond Merger Law?
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NNIICCOOLLAASS PPEETTIITT,, UUNNIIVVEERRSSIITTYY OOFF LLIIEEGGEE ((UULLGG))
ACLE SEMINAR, 14 MARCH 2011
[email protected]
HTTP://CHILLINGCOMPETITION.COM
Objectives
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(cid:1) Circumscribe the scope of the so-called « oligopoly
problem »
(cid:1) Review remedies applied in modern competition law
against tacit collusion
(cid:1) DDiissccuussss wwhheetthheerr tthhee ccuurrrreenntt aapppprrooaacchh ((ii)) ddeelliivveerrss;;
and (ii) could be improved?
Outline
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The « Oligopoly Problem »
1.
Prevailing Approach in Modern EU Competition
2.
Law
Beyond Merger Law?
3.
Ex post enforcement as the way forward?
4.
Conclusions
5.
11.. TThhee «« OOlliiggooppoollyy PPrroobblleemm »»
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Introduction
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(cid:1) Rise of giant oligopolies over the XXth century
(cid:1) Early interest from economists
(cid:1) Identification of a specific market failure
(cid:1)(cid:1) DDiissttiinncctt ffrroomm ssuupprraa--ccoommppeettiittiivvee oouuttccoommeess iinn ccllaassssiicc
oligopolistic interdependence models (Cournot,
Edgeworth, Von Stackelberg)
Epistemological Overview
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Monopoly Oligopoly
Single Firm Monopolistic Oligopolistic
Collusion
Dominance Competition Interdependence
Tacit Explicit
SSttaattiicc mmooddeellss
CCoolllluussiioonn CCoolllluussiioonn
Cournot Chamberlin
Harvard v.
Edgeworth
Chicago
Von
Post Chicago
Stackelberg
The oligopoly
problem
Overview of the Literature
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(cid:1) Chamberlin, « Value where sellers are few » (1929)
Quarterly Journal of Economics, 63
(cid:1) In certain oligopolies, price cuts are useless
(cid:1) Oligopolists mimic each other’s conduct
(cid:2)(cid:2) PPrriicceess rreemmaaiinn aabbnnoorrmmaallyy ssttaabbllee
(cid:2) Prices increase in parallel
(cid:1) Outcome similar to collusion / process different (no
agreement)
(cid:1) « Tacit collusion », « conscious parallelism », « parallel
conduct »
F1-33% F2-33% F3-33%
Initial Price Level
-10% -10% -10%
PL2
-10% -10% -10%
PL3
-10% -10% -10%
PL4
F1-33% F2-33% F3-33%
After four interactions on the market, the price drops by 30% and
the oligopolists’ MS remain stable: price competition is a loss-
making strategy
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Overview of the Literature
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(cid:1) Harvard => Structural issue
(cid:1) Bain, Industrial Organization, John Wiley & Sons, New York, 1968
(cid:1) Kaysen & Turner, Rahl, etc.
(cid:1) Structural presumptions of unreasonable market power
(cid:1) Neal Report (1967) and Industrial Reorganisation Act (1972)
(cid:1) Chicago => Behavioral issue
(cid:1) Stigler, « Theory of Oligopoly », (1964), 72 Journal of Political
Economy, 44
(cid:1) Structure is not sufficient to presume market failure
(cid:1) Tacit collusion is unstable, with constant incentives to deviate
(cid:1) Strict conditions must be met for oligopolists to coordinate=>
monitoring mechanism
Overview of the Literature
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(cid:1) Post Chicago school and game theory
(cid:1) Formally explains how oligopolists can tacitly collude
(cid:2) In a one shot game, competition is the Nash equilibrium. Oligopolists will
compete, even though cooperation would bring more profits
(cid:2) In a repeated game, cooperation (absent communication) is the Nash
equilibrium. Oligopolists will cooperate tacitly, because with repeated games,
they can (i) indirectly communicate; (ii) profits from deviation
ddeeccrreeaassee//pprrooffiittss ffrroomm ccoooorrddiinnaattiioonn iinnccrreeaassee ((ddiissccoouunntt ffaaccttoorr iissssuuee))
(cid:1) Identifies 4 conditions for tacit collusion to happen
C1 – Mutual understanding of the « terms of collusion » (focal point, signalling
strategies, etc.)
C2 – Punishment mechanism (credible, timely and deterrent)
C3 – Monitoring mechanism
C4 – Obstacles to entry
(cid:1) Conditions are influenced by market features (market structure,
transparency, elasticity of demand, etc.)
(cid:1) Tacit collusion may occur in relation to prices, output, but also
investments, product launch, etc.)