Second Order Oligopoly Problems with International Dimensions: Sequential Mergers, Maverick Firms and Buyer Power
| Author | Michael S. Jacobs |
| Published date | 01 September 2001 |
| Date | 01 September 2001 |
| DOI | http://doi.org/10.1177/0003603X0104600304 |
| Subject Matter | Article |
The Antitrust Bulletin/Fall 2001 537
Second order oligopoly problems
with international dimensions:
sequential mergers, maverick firms
and buyer power
BY MICHAEL S. JACOBS*
I.
Introduction
The unprecedented merger wave of the past several years has con-
solidated many markets, and raised the specter that economies
worldwide may be increasingly subject to oligopolistic coordina-
tion. Oligopoly problems are hardly new to competition law, but
the largest
of
those problems, though well-rehearsed, are seem-
ingly irresolvable.1Are oligopolists more likely to compete with
*Professor
of
Law, DePaul University College
of
Law.
See, e.g., F.M.
SCHERER,
INDUSTRIAL
MARKET
STRUCTURE
AND
Eco-
NOMIC
PERFORMANCE
151 (2d ed. 1980)
(recognizing
that
"economists
have developed literally dozens
of
oligopoly pricing
theories-some
sim-
ple, some marvels of mathematical complexity. This proliferation
of
the-
ories is mirrored by an equally rich array
of
behavioral patterns observed
under oligopoly. Casual observation suggests that virtually anything can
happen. Some oligopolistic
industries
maintain
prices
approximating
those apure monopolist would find
most
profitable.
Others
gravitate
toward price warfare
....
").
© 2001 by Federal Legal Publications. Inc.
538
The antitrust bulletin
one another than to colludeP Is collusively coordinated behavior
apt to succeed, and if so under what kinds
of
conditions'P Does
signaling, or the use of focal points available in certain oligopoly
markets, sometimes or always obviate the need for collusion in
those very markets where successful coordination is more likely
to occur'r' Is collusion more likely in a three-firm market than in a
four-firm one?
These are large and important questions indeed. The fact that
they remain unanswered despite the increasing sophistication in
economic
theory
and
methodology
that is the
hallmark
of
the
post-Chicago school suggests that oligopoly in general is highly
resistant to coherent analysis. The large increase in recent years in
the number
of
oligopoly markets suggests that coherent analysis is
more important than ever.
The worldwide merger wave of the late 1990s5has resulted in
substantial increases in concentration levels in dozens
of
markets
and in almost all developed countries. In some of those countries,
most
notably
Australia
and
New
Zealand,
great
distance
from
other
markets and relatively small
populations-along
with the
increased
consolidation
that
mergers
bring-have
combined
to
make
oligopoly
markets the rule rather
than
the
exception.
In
those and other countries, firms seeking regulatory approval to
See A.
COURNOT,
STUDIES
IN
THE
MATHEMATICAL
PRINCIPLES
OF
THE
THEORY
OF
WEALTH
(N.
Baker
trans., 1897) (1838). For a survey of the
economic literature dealing with oligopoly see F.M.
SCHERER
&D. Ross,
INDUSTRIAL
MARKET
STRUCTURE
AND
ECONOMIC
PERFORMANCE
chs.
6-8
(3d
ed.1990).
George
Stigler,
A
Theory
of
Oligopoly,
72 J.
POL.
ECON.
44
(1964).
4Jonathan B. Baker, Two Sherman
Act
Section 1 Dilemmas: Paral-
lel Pricing, the Oligopoly Problem,
and
Contemporary Economic Theory,
38
ANTITRUST
BULL.
143 (Spring 1993).
From
1991 to
1999,
for
example,
Hart-Scott-Rodino
filings
tripled, and the total value
of
the reported mergers increased eleven-fold.
See
Richard
G.
Parker
&
David
A. Balto, The Evolving Approach to
Merger
Remedies,
available
at
<http://www.ftc.gov/speeches/other/
remedies.htm> (Oct. 3, 2000).
Second order oligopoly :539
merge often attempt to demonstrate that potential harms to com-
petition
resulting
from the
postmerger
oligopoly
will
be
out-
weighed by benefits to international competition made possible by
merger-related efficiencies of scale and scope. Indeed, in impor-
tant respects the current trend toward oligopoly may be economi-
cally inevitable. The process of globalization and the rapid growth
of
the information technology sector have demonstrated anew that
in industries with increasing returns to scale, oligopoly may be the
only profitable market structure.
Once formed, however, oligopolies are difficult to regulate,
and pose seemingly intractable problems for competition policy
and
enforcement
authorities.
The
experience
of
courts
in
the
United States trying to distinguish conscious parallelism (which is
lawful and ungovernable in any event) from tacit collusion (which
consists
of
conscious parallelism and certain "plus factors" from
which collusion may be inferred) is neither acoherent
nor
ahappy
one." Not all oligopoly problems defy regulation, though. Some
smaller
problems
exist,
that
are
both
important
and
more
amenable to regulation; and their resolution may help to soften
the
impact
of
the larger ones. This article focuses on three
of
those smaller problems, each
of
which relates to current enforce-
ment difficulties and implicates the shared concern that oligopoly
markets yield suboptimal results for consumers, a
concern
that
animates the approach of competition law, and especially merger
control, in all developed regimes of antitrust enforcement.
The first problem is that
of
"sequential" mergers, a term that I
use to describe the circumstance where one merger proposal in a
concentrated
industry leads almost immediately to a
second
or
third proposal by other firms in the same market, requiring the
competition regulator to evaluate and perhaps to compare several
large and competing mergers simultaneously. The second problem
deals with the "maverick" firm in merger law, the small but feisty
competitor that disrupts oligopolies and, for that reason, is viewed
as too valuable to be lost through merger. The third problem con-
Compare In re Baby Food Litigation, 166 F.3d 112 (3d Cir.
1999); and Blomkest Fertilizer, Inc. et
a1.
v. Potash Corporation of
Saskatchewanet aI.,203 F.3d
1028
(8th Cir. 2000).
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