Three essays on collusion and mergers

Abstract

This thesis aims at contributing to the analysis of the issues of collusion and mergers from an industrial organization perspective. The thesis is composed of three main chapters. In what follows each of those chapters will be discussed in greater detail. In particular, I will briefly describe the model considered in each chapter, its relation to the literature, and the contribution each chapter makes to the existing literature. Chapter one deals with the issue of entry and collusion both theoretically and empirically. In particular, it re-considers Green and Porter’s (1984) model of collusion with imperfect monitoring (in the price version, as in Tirole’s (1988) textbook). In this model with homogeneous goods, a firm can either charge the monopoly price to share the market with other firms or secretly undercut its rivals to get the whole market. Since market demand is affected by stochastic factors, firm’s demand could be zero even when no firm is deviating. Given that the only available information to each firm is its own sales, it is difficult for them to infer whether a low demand is caused by a secret price cut or it is just due to a “bad” demand shock. In equilibrium, the firms need to start a price-war (i.e., charge the competitive price) when the demand is zero to maintain the incentive to charge the monopoly price in the collusive phases. As a result, a price-war occurs with positive probability as an equilibrium phenomenon.