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Kinds of Collusion

April 1st, 2004 · No Comments

So, there’s probably a blindingly obvious answer to this question, but I was kicking it around with a couple of fairly sharp folks at the Guatemala conference earlier this month and, while we came up with a few possible answers, none seemed obviously right. I’d forgotten about it soon after, but it just came up again because of a news report I read. The question is this: As a matter of longstanding common law tradition, collusive contracts (price fixing, etc.) aren’t enforceable, quite apart from any affirmative penalties governments might establish for behavior “in restraint of trade.” Mergers, on the other hand, are sometimes subject to antitrust scrutiny, but are generally allowed. But it seems like you could tailor a merger in a way that preserved most of the division of benefits you’d get from a collusive contract. Or put it another way: if you imagine a range of variously comprehensive collusive contracts, it seems like mergers are just an extreme case at one end of the spectrum. So why the differential treatment? We had a bunch of ideas, but I want to see if others come up with different ones.

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