Determination of Optimal Penalties for Antitrust Violations in a Dynamic Setting

We analyze a differential game describing the interactions between a firm that might be violating competition law and the antitrust authority.The objective of the authority is to minimize social costs (loss in consumer surplus) induced by an increase in prices above marginal costs.It turns out that the penalty schemes which are used now in EU and US legislation appear not to be as efficient as desired from the point of view of minimization of consumer loss from price-fixing activities of the .rm.In particular, we prove that full compliance behavior is not sustainable as a Nash Equilibrium in Markovian strategies over the whole planning period, and, moreover, that it will never arise as the long-run steadystate equilibrium of the model.We also investigate the question which penalty system enables us to completely deter cartel formation in a dynamic setting.We found that this socially desirable outcome can be achieved in case the penalty is an increasing function of the degree of offence and is negatively related to the probability of law enforcement.antitrust;policy;law;dynamic games

Optimal Enforcement of Competition Law.

Despite the recent theoretical developments in the field of antitrust law enforcement, much still needs to be done in order to prevent collusion and price-fixing in the major indiustries. Although penalties were recently increased considerably and new instruments of cartel deterrence such as leniency programs, were introduced, still complete deterrence of antitrust law violations has not been achieved. This thesis contributes to the solution of the problem of optimal competition law enforcement. We approach this problem from the angle of possible refinements of current penalty schemes for violations of competition law. In particular, we determine the optimal combination of instruments such as the amount of the fine and the rate of law enforcement, and the optimal structure and design of leniency programs. In the thesis, the main features of current penalty systems are modeled employing the tools of game theory, dynamic games, and dynamic optimization. We stress the importance of the dynamic analysis of competition law enforcement, since it captures better both the current antitrust rules and the crime process in general. Application of the above-mentioned tools allows us to compare current US and EU penalty schemes for violations of antitrust law and to develop policy implications on how existing penalty schemes can be modified in order to increase their deterrence power.

Antitrust enforcement with price-dependent fines and detection probabilities

We analyze the effectiveness of antitrust enforcement in repeated oligopoly models in which both fines and detection probabilities depend on the cartel price. Such fines reflect actual guidelines. Inspections based on monitoring of market prices imply endogenous detection probabilities. Without monitoring, fines that are either fixed or proportional to illegal gains cannot eradicate the monopoly price, but more-than-proportional fines can. Policy design with inspections based on price-monitoring implies that the profit-maximizing cartel price always lies below the monopoly price independently of the fine structure. These results offer partial support for the current practice of monitoring and more-than-proportional fines.Repeated game, Cartel, Oligopoly, Antitrust enforcement, Competition policy

Optimal dynamic antitrust fines

Standard antitrust optimal fines rely on a microeconomic static model. Motchenkova describes optimal antitrust dynamic sanctions and their application for EU and US methodology. For the EU fine, and based on this methodology, we find an equilibrium point for a high level of offense (2 times normal profits ) and a high detection probability (0.6)

Optimaalinen uhkasakko kolluusioiden estämiseksi

Tiivistelmä. Kolluusiolla tarkoitetaan yritysten välistä salaista yhteistyösopimusta, jolla yritykset pyrkivät kilpailulain vastaisesti esimerkiksi sopimaan tuotettavista määristä, jakamaan markkina-alueita tai korottamaan hintoja saadakseen kilpailullisten markkinoiden tuoton ylittäviä tuottoja. Europan unionissa ja Yhdysvalloissa käytettävät uhkasakkojärjestelmät ja niihin liittyvä armollisuuspolitiikka pyrkivät luomaan yrityksille pelotevaikutuksen, jotta ne eivät muodostaisi kolluusioita. Alennetuilla sakkorangaistuksilla pyritään antamaan yrityksille kannuste siihen, että ne itse paljastaisivat kolluusiot kilpailuviranomaiselle ja täten välttyisivät sakoilta. Nykyiset järjestelmät eivät kuitenkaan saa aikaan optimaalista pelotevaikutusta, eivätkä ne aseta tarpeeksi tehokkaita kannusteita kolluusioiden paljastamiseen. Väärin suunnitellut armollisuusohjelmat voivat pahimmillaan luoda negatiivisia ulkoisvaikutuksia, jotka päinvastoin tukevat kolluusioiden muodostumista. Tämä pro gradu -tutkielma vastaa kysymykseen: Minkälainen on optimaalinen uhkasakkomalli kolluusioiden estämiseksi? Eli millainen malli loisi tehokkaimman pelotteen kolluusion muodostaville tai sitä harkitseville yrityksille, ja samalla kannustaisi yrityksiä ilmiantamaan jo olemassa olevat kolluusiot? Teemaa analysoidaan peliteoreettisen teoriakehikon näkökulmasta ja peliteoreettisia analyysimetodeja käyttäen. Tutkimus pyrkii löytämään myös vastauksen kysymykseen, millainen uhkasakkojärjestelmä mahdollistaisi kolluusioista aiheutuvien hyvinvointitappioiden minimoinnin. Tutkimus tarkastelee myös nykyisin käytössä olevia Euroopan unionin ja Yhdysvaltain uhkasakkojärjestelmiä ja armollisuuspolitiikkaa, analysoiden niiden tehokkuutta (tai tehottomuutta), sekä esittelee mahdollisia optimaalisia uhkasakkomalleja. Tehdyn tutkimuksen ja analyysin perusteella havaitaan, että uhkasakkomallien sakkoja tulisi nostaa huomattavasti, ja niissä tulisi huomioida kiinnijäämisen todennäköisyys paremman pelotevaikutuksen aikaansaamiseksi. Armollisuuspolitiikkaa tulisi käyttää osana uhkasakkomalleja, mutta sakon alennukset ja sakkoimmuniteetti tulisi sallia vain ensimmäiselle kolluusion paljastavalle yritykselle. Optimaalisen alennetun uhkasakon tulisi olla täysi immuniteetti sakoista eli nolla euroa. Tämä maksimoisi pelotevaikutusta ja olisi myös peliteoreettisesta näkökulmasta optimaalisinta. Armollisuuspolitiikan tulisi sisältää kolluusion paljastamisesta palkitseva yrityksen henkilökunnalle suunnattu palkkiomalli, joka synnyttäisi kilpailulakia rikkovien yritysten sisällä päämies-agenttiongelman ja täten vahvistaisi pelotevaikutusta. Kolluusiot olisi yleisesti optimaalista kriminalisoida, jotta myös yrityksen henkilökunta joutuisi suoraan vastuuseen kilpailulain rikkomuksista

The Cost of Antitrust Law to Malaysia's Financial Services Sector

Judging by only economic incentives, Malaysian financial institutions (particularly banks) should completely ignore the Competition Act. The data show that Malaysian banks probably benefit from anti-competitive behaviour. Political and family connections likely facilitate such behaviour. Given that the Malaysian Competition Commission will likely lack the resources to investigate and sanction anti-competitive behaviour in Malaysia’s banking industry – the banks’ best response to the Act probably consists of ignoring it. Maximum fines of 10 million ringgit and revenue-tied penalties of only 10% of worldwide revenue mean that banks still have strong incentives to engage in anti-competitive behaviour and to pay any low fine that might be levied. The best compliance programme for banks in Malaysia likely consists of actions that avoid detection rather than detecting and preventing anti-competitive behaviour. Private rights of action are unlikely to provide any stronger economic incentives for Malaysian banks to adopt strong antitrust compliance programmes and internal audit programmes. By staying the course, Malaysian banks can continue to earn about 15 billion ringgits (approximately US $4.6 billion in anti-competitive rents).preprin

Determination of optimal penalties for antitrust violations in a dynamic setting

We analyze a differential game describing the interactions between a firm that might be violating competition law and the antitrust authority. The objective of the authority is to minimize social costs (loss in consumer surplus) induced by an increase in prices above marginal costs. It turns out that the penalty schemes which are used now in EU and US legislation appear not to be as efficient as desired from the point of view of minimization of consumer loss from price-fixing activities of the firm. In particular, we prove that full compliance behavior is not sustainable as a Nash Equilibrium in Markovian strategies over the whole planning period, and, moreover, that it will never arise as the long-run steady-state equilibrium of the model. We also investigate the question which penalty system enables us to completely deter cartel formation in a dynamic setting. We found that this socially desirable outcome can be achieved in case the penalty is an increasing function of the degree of offence and is negatively related to the probability of law enforcement. © 2007 Elsevier B.V. All rights reserved

Determination of Optimal Penalties for Antitrust Violations in a Dynamic Setting

We analyze a differential game describing the interactions between a firm that might be violating competition law and the antitrust authority.The objective of the authority is to minimize social costs (loss in consumer surplus) induced by an increase in prices above marginal costs.It turns out that the penalty schemes which are used now in EU and US legislation appear not to be as efficient as desired from the point of view of minimization of consumer loss from price-fixing activities of the .rm.In particular, we prove that full compliance behavior is not sustainable as a Nash Equilibrium in Markovian strategies over the whole planning period, and, moreover, that it will never arise as the long-run steadystate equilibrium of the model.We also investigate the question which penalty system enables us to completely deter cartel formation in a dynamic setting.We found that this socially desirable outcome can be achieved in case the penalty is an increasing function of the degree of offence and is negatively related to the probability of law enforcement