Tacit Collusion, Firm Asymmetries and Numbers: Evidence from EC Merger Cases

Abstract

This paper estimates the implicit model, especially the roles of size asymmetries and firm numbers, used by the European Commission to identify mergers with coordinated effects. This subset of cases offers an opportunity to shed empirical light on the conditions where a Competition Authority believes tacit collusion is most likely to arise. We find that, for the Commission, tacit collusion is a rare phenomenon, largely confined to markets of two, more or less symmetric, players. This is consistent with recent experimental literature, but contrasts with the facts on 'hard-core' collusion in which firm numbers and asymmetries are often much larger. JEL Classification codes: L13, L41

Institutional authority and collusion

“…There is a “collusion puzzle” to explain the difference between the robust lab finding that having more than two firms competing in a market drastically reduces the ability to collude (Huck, Müller, and Normann ) whereas in the real world collusion can be observed with a larger number of firms as well (Davies and Olczak ; Davies, Olczak, and Coles ). The experiment presented in this article is one piece of a jigsaw puzzle to explain these contrasting findings.…”

“…There are many plausible and well documented reasons why an increasing number of firms could make it more difficult to tacitly collude (Huck, Müller, and Normann ). However, it is still unclear why the experimental literature finds that collusion breaks down with three or more firms in the market, while in the real world larger numbers of firms seem to be able to tacitly collude (Sen ; Davies, Olczak, and Coles ). Although many dimensions affect the likelihood of a collusive market outcome (for a review see Potters and Suetens ), a “collusion puzzle” remains regarding what dimensions potentially facilitate the ability to collude in settings with larger numbers of firms .…”

Number Effects and Tacit Collusion in Experimental Oligopolies

“…In a study based on field data, Davies et al [2011] try to identify structural determinants of tacit collusion by examining decisions on coordinated effects in European merger control cases. Whereas these results point to higher tacit collusion (concerns) in duopoly markets, no conclusions can be drawn with regard to the general relationship between the number of firms and tacit collusion, because the data includes few markets with three firms and only one with four firms.…”

Explicit vs tacit collusion: The effects of firm numbers and asymmetries

“…For example, Davies et al (2011) show that the European Commission's interventions in mergers due to the increased likelihood of tacit collusion have almost always been confined to cases where there would have been only two relatively symmetric players post-merger. Similarly, numerous laboratory experiments have shown that collusion without communication is unsuccessful at raising prices above competitive levels if there are more than two participants or if there are asymmetries among them (see for example, Huck et al, 2004;and Fonseca and Normann, 2008).…”

“…We refer the reader toGarrod and Olczak (2017) for a more detailed version of this case 14. The reason is that, if all firms set a common price, then either all firms' sales will exceed their respective trigger levels or they all will not.…”