In many sectors competing firms choose the same (or similar) price categories - a price category being defined as a situation where a firm commits to sell a given set of products (or to supply a given set of markets), at a single price. In this Report we show that firms might choose homogeneous price categories in order to facilitate collusion. The reason being that similar price categories might make the enforcement of a given collusive outcome more likely; moreover, they may facilitate coordination on a given collusive outcome simpler; and they may make the market more transparent from the sellers’ side, thereby facilitating reciprocal monitoring. However, homogeneous price categories might simply result from noncollusive competitive interaction. Specifically, firms will tend to adopt similar price categories because they face similar demand or cost conditions. Historical reasons and habits, as well as the design of efficient incentive schemes for employees represent other innocent motives for homogeneous price categories. Finally, the choice of the same price categories as rivals, by making the market more transparent from the demand side, may make a firm’s aggressive pricing strategy more effective. Hence, our study suggests that adopting the same (or similar) categories should not be considered per se illegal, nor competition authorities should devote extra-effort to investigate sectors characterized by similar price categories. It is only an explicit agreement among firms to use homogeneous price categories that should be considered unlawful.

Identical Price Categories in Oligopolistic MArkets. Innocent Behaviour or Collusive Practice?

FUMAGALLI, CHIARA;
2006

Abstract

In many sectors competing firms choose the same (or similar) price categories - a price category being defined as a situation where a firm commits to sell a given set of products (or to supply a given set of markets), at a single price. In this Report we show that firms might choose homogeneous price categories in order to facilitate collusion. The reason being that similar price categories might make the enforcement of a given collusive outcome more likely; moreover, they may facilitate coordination on a given collusive outcome simpler; and they may make the market more transparent from the sellers’ side, thereby facilitating reciprocal monitoring. However, homogeneous price categories might simply result from noncollusive competitive interaction. Specifically, firms will tend to adopt similar price categories because they face similar demand or cost conditions. Historical reasons and habits, as well as the design of efficient incentive schemes for employees represent other innocent motives for homogeneous price categories. Finally, the choice of the same price categories as rivals, by making the market more transparent from the demand side, may make a firm’s aggressive pricing strategy more effective. Hence, our study suggests that adopting the same (or similar) categories should not be considered per se illegal, nor competition authorities should devote extra-effort to investigate sectors characterized by similar price categories. It is only an explicit agreement among firms to use homogeneous price categories that should be considered unlawful.
2006
1234
AGCM Collana Temi e Problemi
Courty, Pascal; Fabra, Natalia; Fumagalli, Chiara; Motta, Massimo
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/54804
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