Unification of Oligopolistic Markets for a Homogeneous Good in the Presence of an Antitrust Commission

Abstract

A basic framework is provided to explain the integration process experienced by oligopolistic markets serving a homogeneous good in different countries. Over the past few decades, such processes have been observed, for instance, in some European markets – in particular, in the energy sector. The idiosyncratic element here is the introduction of an exogenously given antitrust commission that supervises competition in the market and has the authority to fine firms for anticompetitive behavior. We model the unification decision as a simple cooperative non-transferable utility game. We find that the creation of an antitrust commission plays a major role in providing the necessary incentives for market unification. In particular, the commission is able to induce unification of all markets via appropriate choice of antitrust policy. This stands in stark contrast to the benchmark scenario in which the antitrust commission is absent – here, market unification never occurs. We propose the Iberian Electricity Market (MIBEL) as a case study.