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Corporate Governance and Collusive Behavior

Antitrust authorities often consider parallel pricing and market share stability to be clues of illegal collusion. To analyze whether this inference is correct, I develop a model of price competition with differentiated products in which demand and costs vary over time. In many cases parallel pricing does not distinguish between a competitive and a collusive outcome. However, in some cases perfect parallel pricing is compatible only with a competitive equilibrium, and therefore provides some evidence that firms did not collude. I also show that the competitive equilibrium is characterized by a higher market share stability than a collusive equilibrium.

Published in Review of Law & Economics: Vol. 2: No. 1, Article 5. (July 2006)


Date: August 2006
Author(s): Paolo Buccirossi, Giancarlo Spagnolo
Tag(s): Research Papers , Cartels, Competition Economics