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The Oligopoly Problem, Trigger Strategies, and “Coordinated Effects”

Joseph Farrell
Competition Policy International
July 2023
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An oligopolist’s competitive incentive to cut a price is undermined if it thinks its rivals will respond by cutting theirs. Similarly, its incentive to raise a price is supported if the oligopolist believes rivals will also raise theirs. The resulting “oligopoly problem” weakens competition among the oligopolists and raises prices. In “The Oligopoly Problem, Trigger Strategies, and ‘Coordinated Effects,’” Partner Joseph Farrell elucidates the roles of concentration and diversion ratios. He clarifies the role of trigger strategies in repeated-game "folk theorems" and observes that purposive trigger strategies require careful coordination but that non-purposive strategies may not. Finally, he discusses the use of language in this context, noting particularly that "coordination" and its cognates risk being unhelpful in the antitrust analysis of non-purposive responses, meaning it applies sometimes but not always when oligopolists reach what antitrust might call successful coordination.

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