Horizontal Collusion and Parallel Wage Setting in Labor Markets

Jonathan S. Masur

John P. Wilson Professor of Law and Director of the Wachtell, Lipton, Rosen & Katz Program in Behavioral Law, Finance and Economics at the University of Chicago Law School.

Eric A. Posner

Kirkland & Ellis Distinguished Service Professor of Law and Arthur and Esther Kane Research Chair at the University of Chicago Law School.

We thank Curt Bradley, Simon Jacobs, Aneil Kovvali, Filippo Lancieri, Christina Patterson, Randy Picker, Ellie Prager, Steve Salop, Amit Zac, and audiences at the University of Chicago Law School faculty workshop, the Law Review Symposium, and ETH Zurich, for helpful comments, and Sima Biondi, Jonathan Concepción, Millie Cripe, and Charles Tammons for superb research assistance. Eric Posner took a position at the Antitrust Division in the Department of Justice after this paper was substantially completed; the views expressed in this paper do not necessarily reflect those of the Department of Justice.

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Abstract

Horizontal collusion among employers to suppress wages has received almost no attention in the academic literature, in contrast with its more familiar cousin, product-market collusion. The similar economic analysis of labor and product markets might suggest that antitrust should regulate labor and product markets in the same way. But product markets and labor markets do not operate identically: people behave differently as employees and as consumers. Unlike consumers who can switch products relatively easily, employees face significant frictions in changing jobs. Other labor market frictions are created by the pay equity norm and downward nominal wage rigidity. These and related factors stabilize collusive arrangements and facilitate tacit coordination in labor markets. The implications for antitrust law are explored.

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