Output Delegation, Collusion Sustainability, and Mergers with Quantity-Setting Firms

Abstract

Abstract We develop a quantity competition model where a subset of firms belongs to a holding firm that can delegate or centralize the output decisions while the other (decentralized) firms make decisions independently. We show that output centralization may have a procompetitive effect because it reduces firms’ incentives to collude among those firms whose decision is made independently. Furthermore, we find that the merger of decentralized firms may also reduce the incentives to collude. Therefore, in our setup, one can interpret that the antitrust authorities should be wary regarding the restrictions imposed on merging firms concerning the decision-making structure because, under some circumstances, centralization might prevent the market as a whole to collude.