Economic and Legal Implications for the EU Member States
Edited by Katalin J. Cseres, Maarten Pieter Schinkel and Floris O.W. Vogelaar
Chapter 6: Criminalization of Cartels and their Internal Organization
6. Criminalization of cartels and their internal organization Giancarlo Spagnolo1 1 1.1 PRELIMINARIES The Cost of Price-Fixing Do we really want to enforce antitrust laws against cartels? For an estimate of the social cost of collusion people continue focusing on the ‘Harberger triangle’, the loss of net social surplus from reduced consumption induced by the higher collusive price; but that social loss is often rather small. Even considering the ‘Posner rectangle’, which includes the rent-seeking expenditures of cartels, it is not clear that the reduced social loss from deterred anticompetitive practices would be sufﬁcient to justify the cost of antitrust law enforcement. On the other hand, when non-contractable qualitative aspects are very important in terms of gains from trade, competition may do more harm than good. Stiglitz (1989) noted that investments in high product quality backed by reputation are worthwhile if there are supracompetitive proﬁts to win in the future, otherwise ‘cheating’ on quality is always preferred by ﬁrms; but future rents are incompatible with perfect competition. Kranton (2003) and Fershtman and Pakes (2000) present formal models of dynamic oligopolies where reducing competition by ﬁxing prices is beneﬁcial for both producers and consumers. In a repeated procurement framework, Calzolari and Spagnolo (2005) ﬁnd that when non-contractable quality is sufﬁciently important, a collusive agreement among competing suppliers may deliver the ﬁrst best, leaving both buyer and sellers better off. And many years ago, Schumpeter suggested that too much competition in the market (rather than for the market)...
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