Antitrust enforcement policy and markets interaction: targeted or concerted interventions?

We study the design of antitrust intervention policy in presence of horizontally imperfectly differentiated industries. Firms in a given industry may decide to collude, but inter-industry collusion is assumed not to be possible. We find that the enforcement policy depends critically on the nature of the differentation and of the competition between industries. With substitutes, the intervention policy should be targeted when firms are Cournot competitors. Indeed, in this case, enforcing a competitive behavior from one industry has a positive spill-over on the incentive to collude in the other industry: the stronger the substitutability, the more targeted the intervention. However, with Bertrand competition and sufficiently homogenous products, even two collusive industries make almost no profits. In this case, we show that the intervention is concerted across industries and decreases with the substitutability between products. By contrast, with complements, these probabilities must be equal across markets since enforcing a competitive behavior in one industry reinforces the other industry's incentive to collude. This result carries over to the situation of vertically linked industries where outputs are technological complements. For sufficiently large degrees of complementarity, the antitrust authority is forced to intervene with probability one in both markets. These results do no longer depend on the nature of the competition

Distortion of competition and effect on trade between Member states: Chapter 5

peer reviewe

Antitrust enforcement policy and markets interaction: targeted or concerted interventions ?

We study the design of antitrust intervention policy in presence of horizontally imperfectly differentiated industries. Firms in a given industry may decide to collude, but inter-industry collusion is assumed not to be possible. We find that the enforcement policy depends critically on the nature of the differentation and of the competition between industries. With substitutes, the intervention policy should be targeted when firms are Cournot competitors. Indeed, in this case, enforcing a competitive behavior from one industry has a positive spill-over on the incentive to collude in the other industry: the stronger the substitutability, the more targeted the intervention. However, with Bertrand competition and sufficiently homogenous products, even two collusive industries make almost no profits. In this case, we show that the intervention is concerted across industries and decreases with the substitutability between products. By contrast, with complements, these probabilities must be equal across markets since enforcing a competitive behavior in one industry reinforces the other industry's incentive to collude. This result carries over to the situation of vertically linked industries where outputs are technological complements. For sufficiently large degrees of complementarity, the antitrust authority is forced to intervene with probability one in both markets. These results do no longer depend on the nature of the competition.antitrust intervention, product differentiation