Oligopoly: The Contracting Approach and Prior Treatments Contrasted

Like Fellner, the problem of oligopoly under the contracting approach is treated as one of interdependence recognized. Also, as Fellner does, the multidimensional nature of the interdependence issue is emphasized: price coordination is only a part of the problem, especially in differentiated product industries. But whereas Fellner attributes the problems of interdependence to the complexities of discounting uncertain future values and in pooling risks, I put the issue in contingent claims contracting terms. While these are not unrelated, the latter highlights the contracting issues and permits us to draw expressly on the organizational failures framework of Chapter 2. A more complete assessment of the problems of oligopolistic collusion is thereby afforded.

Stigler’s analysis runs almost entirely in terms of prices. Moreover, he takes as given that the collusive agreement has already been reached. Attention is focused instead on cheating and on statistical inference techniques for detecting cheaters. While this last is very useful and calls attention in an interesting way to aspects of the oligopoly problem that others have rather neglected, it is also incomplete. The discussion in Section 2 reveals that monitoring is only one of a series of contracting steps, and not plainly the one that warrants priority attention.

Both Turner and Posner also give primary attention to prices in their discussions of oligopoly. But the similarity ends there. Thus, whereas Turner emphasizes tacit collusion of the interdependence recognized sort and finds injunctive relief to be inefficacious, Posner regards the inter- dependence theory unsatisfactory, discusses oligopoly instead as a cartel problem, and concludes that injunctive relief is appropriate.

The spirit of my discussion is somewhat akin to Posner’s cartel analysis, but the specifics plainly differ. For one thing, I restate the problem in terms of what a lawful cartel could accomplish. Also, I am much more concerned than Posner with the details and impediments to successful interfirm contracting. Finally, as will be apparent below, I agree with Turner that injunctive relief in highly concentrated, homogeneous product, entry impeded, mature industries is unlikely to be effective. Structural relief is here indicated instead.

Source: Williamson Oliver E. (1975), Markets and hierarchies: Analysis and antitrust implications, A Study in the Economics of Internal Organization, The Free Press.

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