Chapter 3: The law and economics of tacit coordination
3. The law and economics of tacit coordination 3.1 INTRODUCTION As we saw in Chapter 2, economic theory predicts that under certain circumstances firms operating in oligopolistic market structures may have incentives to collude rather than compete, which can result in detrimental welfare effects similar to those produced by a monopolist. As we have also seen, European law has responded to this prediction through a number of legal provisions. The purpose of this chapter is to provide an overview of the legal provisions relating to tacit collusion and to examine in detail the specific predictions of economic theory regarding when we might expect to observe firms colluding rather than competing which may be relevant in the enforcement of these provisions. 3.2 3.2.1 THE LAW OF COLLECTIVE DOMINANCE Introduction The potential for tacit collusion to occur in oligopolistic markets is known in the relevant literature as the ‘oligopoly problem’. In Europe, and in other jurisdictions, the ‘oligopoly problem’ has not always been viewed as necessitating a legal response. In the United States, for example, the question of whether the ‘oligopoly problem’ should be of automatic concern to the law has been fiercely debated since the 1960s.1 The debate about the ‘oligopoly problem’ in European legal policy has centred less on the need for the law to address the problem, which has generally been recognised,2 but rather on the nature and scope of the 1 Compare D.F. Turner ‘The definition of agreement under the Sherman Act: conscious parallelism and refusals to...
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