Auction Size and Collusion

This paper analyzes the consequences of the size of an auction, in terms of the volume of product and the time lenght covered by the auctioned contract, on the incentive bidders have to collude. The paper shows that the recommendation to increase as much as possible the auction size in order to prevent bidders from colluding, found in several policy papers, is valid only in some exceptional circumstances. In many cases increasing the auction size may induce bidders to form a cartel that would not have been existed otherwise.

A Search Model Where Consumers Choose Quantity Based on Expected Price

I describe a price game in which consumers face search costs and base their quantity decision on the expected price. Because of search costs, the choice of the firm they will buy from is described by a random process. I show that the expected equilibrium price is above the monopoly price. This result does not change if demand comes from a small share of perfectly informed consumers with zero search costs.

Published in The Journal of Industrial Economics, December 2003, Vol. LI, n. 4, pp. 427-32.

Competition Policy and the Agribusiness Sector in the European Union

This paper analyses the main antitrust decisions in the agribusiness sector in Europe. First, legislation and economic principles are recalled. Then for input suppliers, farmers, manufacturers, and retailers, we give a brief presentation of the market structure and discuss the main competition concerns according to the most recent antitrust decisions. Farmers are the weakest link of the entire chain, given the degree of concentration in the upstream and downstream industries in Europe. The use of the concept of buying power could be developed by competition authorities to balance power along the agro-food chain.

Published in European Review of Agricultural Economics, 29(3), August 2002, pp. 373-397.

Indizi economici e collusione

Economic evidence and proof of a collusive agreement. I investigate whether some economic observations may contribute to prove the existence of an illegal collusive agreement. The facts analyzed are: simultaneous increase in prices, price parallelism, market shares stability, price similarity among firms when firms have different costs, price similarity among firms and products when products have different costs, third degree price discrimination. I find that in many cases these observations per se do not allow to discriminate between a collusive and a competitive equilibrium and that further information on costs and demand is needed to obtain a legal proof.

Published in Economia e politica industriale.

Parallelismo e collusione

Antitrust authorities often consider parallelism of firms’ strategies and market share stability as clues of illegal collusion in the form of concerted practices. In this paper I show that this inference may be contrary to some theoretical results. I develop a model of price competition with differentiated products in which demand and costs vary over time. If the market is perturbed by shocks on the supply or on the demand side which are common to all firms, then price parallelism will occur both in a competitive and in a collusive equilibrium and cannot signal which one occurred. If shocks are firm specific, price parallelism connotes a competitive market. The paper also shows that the competitive equilibrium is characterized by a higher market share stability than a collusive equilibrium.

Published in Rivista Italiana degli Economisti.

Stock-Related Compensation and Product-Market Competition

I show that as long as the stock market has perfect foresight, profits are distributed as dividends, and incentives are paid more than once or are deferred, stock-related compensation packages are strong incentives for managers to support tacit collusive agreements in repeated oligopolies. The stock market anticipates the losses from punishment phases and discounts them on stock prices, reducing managers’ short-run gains from any deviation. When deferred, stock-related incentives may remove all managers’ short-run gains from deviation, making collusion supportable at any discount factor. The results hold with managerial contracts of any length.

Published in RAND Journal of Economics 31/1 (Spring 2000), pages 22-42

The Effects of Leniency on Illegal Transactions: How (Not) to Fight Corruption

We study the consequences of ‘leniency’ – reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers – on corruption, drug dealing, and other forms of sequential, bilateral, illegal trade. We find that when not properly designed, leniency may be highly counterproductive. In reality leniency is typically “moderate,” in the sense of only reducing, or at best cancelling the sanctions for the self-reporting party. Moderate leniency may greatly facilitate the enforcement of long-term illegal trade relations, and may even provide an effective enforcement mechanism for occasional (one-shot) illegal transactions, which would not be enforceable otherwise.

On Interdependent Supergames: Multimarket Contact, Concavity, and Collusion

Following Bernheim and Whinston (1990), this paper addresses the effects of multimarket contact on firms’ ability to collude. Real world imperfections tend to make firms’ objective function strictly concave and market supergames “interdependent”: firms’ payoffs in each market depend on how they are doing in others. Then, multimarket contact always facilitates collusion. It may even make collusion sustainable in all markets when otherwise it would not be sustainable in any. The effects of conglomeration are discussed. “Multigame contact” is shown to facilitate cooperation in supergames other than oligopolies as long as agents’ objective function is submodular in material payoffs.

Published in Journal of Economic Theory 89/1 (November 1999), pages 127-139

Access to an Essential Facility: Efficient Component Pricing Rule or Unrestricted Private Property Rights

In this paper we compare the access to an essential facility in two different property rights regimes. In one of them, the owner of the facility has a full private property right. In the other, access is regulated according to the efficient component pricing rule. Proponents of the second regime claim that this rule is efficient, for it forecloses the complementary market only to inefficient producers. We prove that the two legal frameworks are equivalent if we do not consider the possibility of the transfer of the property right and that if this is allowed the efficient component pricing rule might exclude efficient suppliers.