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Collusive Networks in Market-Sharing Agreements in the Presence of an Antitrust Authority

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  • This paper is a revised version of Chapter 1 of my Ph.D. thesis submitted to the Universidad Carlos III de Madrid. I am grateful to Antonio Cabrales and Luis Ubeda for their advice, guidance, and support. I have greatly benefited from comments and useful suggestions Natalia Fabra, Carlos Ponce, Antonio Romero, José Penalva, Guillermo Caruana, Juanjo Ganuza, Héctor Chade, and two anonymous referees. I thank seminar participants at the Student Workshop at the Universidad Carlos III, the 2007 EARIE Meetings (Valence, Spain), XXXII Simposio de Análisis Económico, BBVA (January 2008), the University of Vienna (February 2008), IESE Business School (March 2008), Universitat de les Illes Balears (March 2008), CRESSE Conference, Chania (2009), ESEM 2009 Annual Meeting in Barcelona, Spain, and Jornadas de Economía Industrial (September 2009), Vigo, Spain. I gratefully acknowledge financial support through grant ECO2009-13169/ECON from the Spanish Ministry of Science and Innovation. The usual disclaimers apply.

Abstract

This paper examines how the presence of an antitrust authority (AA) affects market-sharing agreements made by firms. These agreements prevent firms from entering each other’s markets. The set of agreements defines a collusive network, which is pursued by antitrust authorities. This paper shows that in the absence of an AA, a network is stable if its alliances are large enough, and in the presence of an AA, more competitive structures can be sustained through bilateral agreements. Antitrust laws may have a procompetitive effect, as they give firms in large alliances more incentives to cut their agreements at once.

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