DP6829 Asymmetric Cartels - a Theory of Ring Leaders

Author(s): Mattias Ganslandt, Lars Persson, Helder Vasconcelos
Publication Date: May 2008
Keyword(s): Cartels, Collusion, Cost Asymmetries, Merger Policy, Ring Leader
JEL(s): D43, L41
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6829

Many convicted cartels have a leader which is substantially larger than its rivals. In a setting where firms face indivisible costs of collusion, we show that: (i) firms may have an incentive to merge so as to create asymmetric market structures since this enables the merged firm to cover the indivisible cost associated with cartel leadership; and (ii) forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with a higher risk of collusion. Thus, these results have implications for the practice of the current EU and US merger policies.