108 Iowa L. Rev. 1089 (2023)
The chief principle of antitrust law and theory is that reducing market concentration—having more, smaller firms instead of fewer, bigger ones—reduces anticompetitive behavior. We demonstrate that this principle is fundamentally incomplete.
In many industries, collaborating with rivals is important. Firms in such “Collaborative Industries” are interdependent, and they can use their interdependence to collude. Reducing market concentration does not change this dynamic, and thus does not prevent collusion. Worse, if smaller firms depend on collaboration more than larger ones do, reducing market concentration can actually encourage collusion.
Antitrust enforcers have observed that Collaborative Industries are more prone to collusion. Yet conventional economic models, and the antitrust laws and policies built upon them, do not reflect Collaborative Industries’ dynamics. Our findings have important implications for antitrust doctrine, how regulators choose and present cases, the public guidance that agencies issue, and the methods that regulators employ to fight collusion.