The role of patents in cartel stability
DOI:
https://doi.org/10.12775/EiP.2021.024Keywords
patents, duopoly, collusion, cartel stabilityAbstract
Motivation: Oligopolistic firms entering a collusive agreement often face the prisoner dilemma problem which makes such agreements inherently unstable. There has been a wide discussion in the literature on a variety of solutions to stabilize cartel arrangements. Only recently, it has been pointed out that patents could play an important role in cartel creation and functioning. However, there is a need for a formal modelling to better understand the role of patents in market competition.
Aim: In this paper, we consider the impact of patent rights on the competition of duopolists in the final product market. We assess the incentives of firms holding essential patents to create a cartel. Our main objective is to investigate the role of patents in cartel stability.
Results: Using game-theoretical approach, we show that it is beneficial for the patent-holding duoplists to form a cartel. Moreover, it is demonstrated that the existence of patents may help eliminate the prisoner dilemma problem faced by the participants of collusive agreement and significantly contribute to cartel stability. These conclusions suggest that patents may play an important role in restricting market competition.
References
Aubert, C., Kovacic, W., & Rey, P. (2006). The impact of leniency and whistle-blowing programs on cartels. International Journal of Industrial Organization, 24(6), 1241–1266. https://doi.org/10.1016/j.ijindorg.2006.04.002.
Bigoni, M., Fridolfsson, S.-O., Le Coq, C., & Spagnolo G. (2012). Fines, leniency, and rewards in antitrust. The RAND Journal of Economics, 43(2), 368–390. https://doi.org/10.1111/j.1756-2171.2012.00170.x.
Choi, J.P., & Gerlach, H. (2012). International antitrust enforcement and multimarket contact. International Economic Review, 53(2), 635–658. https://doi.org/10.1111/j.1468-2354.2012.00695.x.
Church, J., & Ware, R. (2000). Industrial organization: a strategic approach. McGraw–Hill.
Compte, O., Jenny, F., & Rey, P. (2002). Capacity constraints, mergers and collusion. European Economic Review, 46(1), 1–29. https://doi.org/10.1016/S0014-2921(01)00099-X.
Diamantoudi, E. (2005). Stable cartels revisited. Economic Theory, 26(4), 907–921. https://doi.org/10.1007/s00199-004-0550-0.
European Commission. (2020). Cartels: cases. Retrieved 17.10.2020 from https://ec.europa.eu/competition/cartels/cases/cases.html.
Green, E.J., & Porter, R.H. (1984). Noncooperative collusion under imperfect price information. Econometrica, 52(1), 87–100. https://doi.org/10.2307/1911462.
Harrington, J.E. (2008). Optimal corporate leniency programs. The Journal of Industrial Economics, 56(2), 215–246. https://doi.org/10.1111/j.1467-6451.2008.00339.x.
Harrington, J.E. (2017). The theory of collusion and competition policy. MIT Press.
Harrington, J.E., & Skrzypacz, A. (2007). Collusion under monitoring of sales. The RAND Journal of Economics, 38(2), 314–331. https://doi.org/10.1111/j.1756-2171.2007.tb00070.x.
Harrington, J.E., & Wei, Y. (2017). What can the duration of discovered cartels tell us about the duration of all cartels. The Economic Journal, 127(604), 1977–2005. https://doi.org/10.1111/ecoj.12359.
Hay, G.A., & Kelly, D. (1974). An empirical survey of price fixing conspiracies. Journal of Law and Economics, 17(1), 13–38. https://doi.org/10.1086/466782.
Karbowski, A. (2020). A note on patents and leniency. Gospodarka Narodowa, 301(1), 97–108. https://doi.org/10.33119/GN/116615.
Levenstein, M.C., & Suslow, V.Y. (2006). What determines cartel success. Journal of Economic Literature, 44(1), 43–95. https://doi.org/10.1257/002205106776162681.
Levenstein, M.C., & Suslow, V.Y. (2011). Breaking up is hard to do: determinants of cartel duration. Journal of Law and Economics, 54(2), 455–492. https://doi.org/10.1086/657660.
Lipczynski, J., Wilson, J.O.S., & Goddard, J. (2017). Industrial organization: competition, strategy and policy. Pearson.
Paha, J. (2017). The value of collusion with endogenous capacity and demand uncertainty. Journal of Industrial Economics, 65(3), 623–653. https://doi.org/10.1111/joie.12143.
Pepall, L., Richards, D.J., & Norman, G. (2014). Industrial organization: contemporary theory and empirical applications. Wiley.
Rotemberg, J.T., & Saloner, G. (1986). A supergame-theoretic model of price wars during booms. The American Economic Review, 76(3), 390–407.
Spagnolo, G. (2008). Leniency and whistle-blowers in antitrust. In P. Buccirossi (Ed.), Handbook of antitrust economics (pp. 259–304). MIT Press.
Tirole, J. (1997). The theory of industrial organization. MIT Press.
Vasconelos, H. (2005). Tacit collusion, cost asymmetries, and mergers. The RAND Journal of Economics, 36(1), 39–62.
Wu, W. (2019). Managing cartels through patent pools. The Antitrust Bulletin, 64(3), 457–473. https://doi.org/10.1177/0003603X19863592.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2021 Jacek Prokop
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.
Stats
Number of views and downloads: 602
Number of citations: 0
