The Theory of Collusion and Competition Policy

by Joseph E. Harrington Jr.

Overview

A review of the theoretical research on unlawful collusion, focusing on the impact and optimal design of competition law and enforcement.

Collusion occurs when firms in a market coordinate their behavior for the purpose of producing a supracompetitive outcome. The literature on the theory of collusion is deep and broad but most of that work does not take account of the possible illegality of collusion. Recently, there has been a growing body of research that explicitly focuses on collusion that runs afoul of competition law and thereby makes firms potentially liable for penalties. This book, by an expert on the subject, reviews the theoretical research on unlawful collusion, with a focus on two issues: the impact of competition law and enforcement on whether, how long, and how much firms collude; and the optimal design of competition law and enforcement.

The book begins by discussing general issues that arise when models of collusion take into account competition law and enforcement. It goes on to consider game-theoretic models that encompass the probability of detection and penalties incurred when convicted, and examines how these policy instruments affect the frequency of cartels, cartel duration, cartel participation, and collusive prices. The book then considers the design of competition law and enforcement, examining such topics as the formula for penalties and leniency programs. The book concludes with suggested future lines of inquiry into illegal collusion.

Product Details

ISBN-13:	9780262036931
Publisher:	MIT Press
Publication date:	11/16/2017
Series:	The MIT Press
Pages:	144
Product dimensions:	5.40(w) x 8.10(h) x 0.40(d)
Age Range:	18 Years

About the Author

Joseph E. Harrington, Jr., is Patrick T. Harker Professor in the Department of Business Economics and Public Policy at the Wharton School at the University of Pennsylvania.

Table of Contents

Preface ix

1 Introduction 1

1.1 Defining Collusion 1

1.2 Overview of Book 8

2 Game-Theoretic Modeling Issues 11

3 Impact of Competition Policy on Collusion 19

3.1 Cartel Formation and Duration 19

3.2 Cartel Participation 28

3.3 Collusive Price 31

3.4 Summary of Findings 56

4 Optimal Competition Policy 61

4.1 Overview of Modeling Issues 61

4.2 Optimal Enforcement 63

4.3 Optimal Design of Penalties 70

4.4 Customer Damages 76

4.5 Leniency Programs 82

4.6 Summary of Findings 103

5 Some Areas for Future Research 107

Appendix: Notation 111

Notes 113

References 119

Index 127

What People are Saying About This

Massimo Motta

Joseph Harrington is probably the scholar who has contributed the most to the theory of collusion. In this work, he shares his knowledge with us, and the result is aconcise, clear, and insightful book. I have learned a lot from it, and I highly recommend it to economic researchers and graduate students who want to better understand the economics of collusion as well as competition enforcement in this area.

Endorsement

Joseph Harrington is probably the scholar who has contributed the most to the theory of collusion. In this work, he shares his knowledge with us, and the result is aconcise, clear, and insightful book. I have learned a lot from it, and I highly recommend it to economic researchers and graduate students who want to better understand the economics of collusion as well as competition enforcement in this area.

—Massimo Motta, ICREA Research Professor, Universitat Pompeu Fabra; GSE Research Professor, Barcelona Graduate School of Economics

From the Publisher

Joseph Harrington is a world-renowned scholar in the economics of industrial organization and especially the economics of collusion. This book provides a unique window into the interaction between competition law and collusion. I will definitely be assigning this book in my graduate industrial organization class and make it required reading for any PhD student who is working on a topic in collusion.

— Robert C. Marshall , Distinguished Professor of Economics, Pennsylvania State University

Without ceding his impressive clarity and rigor, Joseph Harrington has made easily accessible a large body of recent theoretical work on the complex interaction between cartels' incentives and antitrust enforcement. The book will prove invaluable to all researchers interested in the field, independent of career stage and preferred methodology, and to any competition policy-maker ready to acknowledge the complexity of our world.

— Giancarlo Spagnolo , Professor of Economics, SITE-Stockholm School of Economics

Joseph Harrington is probably the scholar who has contributed the most to the theory of collusion. In this work, he shares his knowledge with us, and the result is a concise, clear, and insightful book. I have learned a lot from it, and I highly recommend it to economic researchers and graduate students who want to better understand the economics of collusion as well as competition enforcement in this area.

— Massimo Motta , ICREA Research Professor, Universitat Pompeu Fabra; GSE Research Professor, Barcelona Graduate School of Economics

Robert C. Marshall

Joseph Harrington is a world-renowned scholar in the economics of industrial organization and especially the economics of collusion. This book provides a unique window into the interaction between competition law and collusion. I will definitely be assigning this book in my graduate industrial organization class and make it required reading for any PhD student who is working on a topic in collusion.

Giancarlo Spagnolo

Without ceding his impressive clarity and rigor, Joseph Harrington has made easily accessible a large body of recent theoretical work on the complex interaction between cartels' incentives and antitrust enforcement. The book will prove invaluable to all researchers interested in the field, independent of career stage and preferred methodology, and to any competition policy-maker ready to acknowledge the complexity of our world.