A PYMNTS Company

Competition policy and cartel size

By  |  August 14, 2013

Posted by D. Daniel Sokol

Iwan Bos (Maastricht University) and Joseph E. Harrington Jr. (Wharton) theorize about Competition policy and cartel size

ABSTRACT: This paper examines endogenous cartel formation in the presence of a competition authority. Competition policy makes the most inclusive stable cartels less inclusive. In particular, small firms that might have been cartel members in the absence of a competition authority are no longer members. Regarding the least inclusive stable cartels, competition policy can either increase or decrease their inclusiveness. Highly inelastic market demand is sufficient for the presence of a competition authority to cause the least inclusive stable cartels to increase in size.