A Theory of “Too Big To Jail”

Motivated by some recent examples, this paper employs a model of public law enforcement to explain why it may not be in society’s interest to send criminals to prison. We establish two main findings. First, independent of the lawbreaker’s societal position, imprisonment is suboptimal when the harm from the illegal activity is sufficiently small. Second, for a given level of harm, imprisonment is suboptimal when the lawbreaker is sufficiently important. This latter result thus provides a rationale for why some parties are taken to be “too big to jail”

Competition versus Collusion: The Impact of Consumer Inertia

We consider a model of dynamic price competition to analyze the impact of consumer inertia on the ability of firms to sustain high prices. Three main consequences are identified, all of which contrast with predictions of the standard model of collusion: (i) maintaining high prices does not require punishment strategies when firms are sufficiently myopic, (ii) if buyers are sufficiently inert, then high prices can be sustained for all discount factors, and (iii) the ability to maintain high prices may depend non-monotonically on the level of the discount factor when the industry exhibits network externalities and demand is sufficiently viscous. These results provide a number of interesting insights with regard to competitive and collusive pricing behavior. In particular, we illustrate how direct communication between firms may facilitate collusion.microeconomics ;

Cartel Stability under Quality Differentiation

This note considers cartel stability when the cartelized products are vertically differentiated. If market shares are maintained at pre-collusive levels, then the firm with the lowest competitive price-cost margin has the strongest incentive to deviate from the collusive agreement. The lowest-quality supplier has the tightest incentive constraint when the difference in unit production costs is sufficiently small.Comment: 17 pages, including 3 additional Appendice

Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing

Basing-point pricing is known to have been abused by geographically dispersed firms in order to eliminate competition on transportation costs. This paper develops a topographic test for collusive basing-point pricing. The method uses transaction data (prices, quantities) and customer project site locations to recover the basing-point(s) from which delivered prices were calculated. These bases are compared to the locations of the production mills in a test that discriminates between competitive and collusive basing-point pricing. We define a measure for the likelihood of collusion that can be used to screen industries that traditionally apply delivered pricing for the presence of cartels. We operationalize this screen with a software. The test is hard to beat for cartels using this otherwise elusive form of price-fixing. When a cartel was found to have abused the basing-point system, our method can be used to estimate antitrust damages

Competition Policy and Cartel Size

This article examines endogenous cartel formation in the presence of a competition authority. Competition policy is shown to make the most inclusive stable cartels less inclusive. In particular, small firms that might have been cartel members in the absence of a competition authority are no longer members. Regarding the least inclusive stable cartels, competition policy can either decrease or increase their size and, in the latter case, the collusive price can rise

U.S. Competition Policy and the Free Market Philosophy: A Moral Justification

Few today would doubt the need for competition rules in a free, marked-based society like the United States of America. From a free market philosophy perspective, however, there is something inherently paradoxical about the presence of competition policy. After all, the competition laws that are intended to combat restraints of trade are, in fact, themselves restraints of trade and their enforcement implies extensive government intervention. It is argued that competition policy is nevertheless compatible with the free market philosophy when the free market system would effectively disappear without it and it is shown that this possibility was considered real in the history of U.S. competition law enforcement. U.S. competition policy stimulates free market survival by shaping market structure and by promoting the free market spirit. Both make American competition policy consistent with the free market philosophy and consequently provide a moral justification for its presence

Cartel Formation with Quality Differentiation

Research on collusion in vertically differentiated markets is conducted under one or two potentially restrictive assumptions. Either there is a single industry-wide cartel or costs are assumed to be independent of quality or quantity. We explore the extent to which these assumptions are indeed restrictive by relaxing both. For a wide range of coalition structures, profit-maximizing cartels of any size price most of their lower quality products out of the market as long as production costs do not increase too much with quality. If these costs rise sufficiently, however, then market share is maintained for all product variants. All cartel sizes may emerge in equilibrium when exclusively considering individual deviations, but the industry-wide cartel is the only one immune to deviations by coalitions of members. Overall, our findings suggest that firms have a strong incentive to coordinate prices when the products involved are vertically differentiated

The CantiClever: a dedicated probe for magnetic force microscopy

We present a new cantilever for magnetic-force microscopy (MFM), the CantiClever, which is not derived from atomic-force microscopy (AFM) probes but optimized for MFM. Our design integrates the cantilever and the magnetic tip in a single manufacturing process with the use of silicon micromachining techniques, which allows for batch fabrication of the probes. This manufacturing process enables precise control on all dimensions of the magnetic tip, resulting in a very thin magnetic element with a very high aspect ratio. Using. the CantiClever, magnetic features down to 30 nm could be observed in a CAMST reference sample