Introduction

The first important category of competition concerns is that of horizontal constraints among firms that have as their object or effect the prevention, restriction, or distortion of competition. This category includes hardcore cartel cases of price fixing and market sharing, but also more sophisticated anticompetitive horizontal agreements such as joint sales agencies, agreements on limiting marketing activities, capacity restrictions and other aspects of production, information sharing on prices and sales, service and distribution agreements, export cartels, and exclusionary practices toward entrants. It further extends to specialization and licensing agreements, trademarks, agreements on (technical) standards, strategic alliances, trade associations, and the joint organization of exhibitions and fairs. While some of these forms of cooperation may have positive welfare effects, they also have an inherent danger of leading to collusion.

Setting up and maintaining a collusive agreement can be difficult, since a number of factors can undermine the successful implementation of a cartel agreement. It is key for cartel success to create trust among its participants. It is generally costly for colluders to monitor and control the behavior of other parties to the agreement. This is important, because each cartel member has an incentive to free ride on the collusive agreement by undercutting the collusive price level to unilaterally increase profits. Therefore, the success of collusion depends among other things on quick detection of deviating behavior and effective punishment mechanisms.