61 research outputs found
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
Measuring the effectiveness of anti-cartel interventions : a conceptual framework
This paper develops a model of the birth and death of cartels in the presence of enforcement activities by a Competition Authority (CA). We distinguish three sets of interventions: (a) detecting, prosecuting and penalising cartels; (b) actions that aim to stop cartel activity in the short-term, immediately following successful prosecution; (c) actions that aim to prevent the re-emergence of prosecuted cartels in the longer term. The last two intervention activities have not been analysed in the existing literature. In addition we take account of the structure and toughness of penalties. In this framework the enforcement activity of a CA causes industries in which cartels form to oscillate between periods of competitive pricing and periods of cartel pricing. We determine the impact of CA activity on deterred, impeded, and suffered harm. We derive measures of both the total and the marginal effects on welfare resulting from competition authority interventions and show how these break down into measures of the Direct Effect of interventions (i.e. the effect due to cartel activity being impeded) and two Indirect/Behavioural Effects â on Deterrence and Pricing. Finally, we calibrate the model and estimate the fraction of the harm that CAs remove as well as the magnitude of total and marginal welfare effects of anti-cartel interventions.Publisher PD
Penalising on the basis of the severity of the offence: A sophisticated revenue-based cartel penalty
Penalizing cartels : the case for basing penalties on the price overcharge
Yannis Katsoulacos acknowledges that this research has been co-financed by the European Union (European Social Fund â ESF) and Greek national funds through the Operational Program "Education and Lifelong Learning" of the National Strategic Reference Framework (NSRF) - Research Funding Program: ARISTEIA â CoLEG.In this paper we set out the welfare economics based case for imposing cartel penalties on the cartel overcharge rather than on the more conventional bases of revenue or profits (illegal gains). To do this we undertake a systematic comparison of a penalty based on the cartel overcharge with three other penalty regimes: fixed penalties; penalties based on revenue, and penalties based on profits. Our analysis is the first to compare these regimes in terms of their impact on both (i) the prices charged by those cartels that do form; and (ii) the number of stable cartels that form (deterrence). We show that the class of penalties based on profits is identical to the class of fixed penalties in all welfare-relevant respects. For the other three types of penalty we show that, for those cartels that do form, penalties based on the overcharge produce lower prices than those based on profit)while penalties based on revenue produce the highest prices. Further, in conjunction with the above result, our analysis of cartel stability (and thus deterrence), shows that penalties based on the overcharge out-perform those based on profits, which in turn out-perform those based on revenue in terms of their impact on each of the following welfare criteria: (a) average overcharge; (b) average consumer surplus; (c) average total welfare.PostprintPeer reviewe
Penalizing cartelsâa spectrum of regimes
There has been much discussion by both academics and policymakers of the most appropriate way of penalizing cartels taking account of both the effects of different penalty regimes on welfare as well as various implementation considerations such as ease/cost of implementation and transparency/legal certainty. Consequently there now exists a range of proposed penalty regimesâincluding two put forward by ourselves. While these can all seem like very distinct regimes, in this article we show that they can usefully be thought of as lying along a spectrum, inter-connected by the idea of trying to penalize cartels in relation to the damage they cause. They differ in their informational requirements, and in particular whether some key factors needed to calculate the penalty are case-specific or an average across a wide range of cases. Subtle differences in what information is required and how it is used can sometimes cause significant changes in either the welfare or implementation properties of regimes. This new perspective may provide a helpful way of organizing the discussion about the pros and cons of the different proposals.PostprintPeer reviewe
Penalising on the basis of the severity of the offence : a sophisticated revenue-based cartel penalty
We propose a new penalty regime for cartels in which the penalty base is the revenue of the cartel but the penalty rate increases in a systematic and transparent way with the cartel overcharge. The proposed regime formalises how revenue can be used as the base while taking into account the severity of the offence. We show that this regime has better welfare properties than the simple revenue-based regime under which the penalty rate is fixed, while having relatively low levels of implementation costs and uncertainty. We conclude that the proposed penalty regime deserves serious consideration by Competition Authorities.PostprintPeer reviewe
Combining cartel penalties and private damage actions : the impact on cartel prices
In many countries antitrust enforcement by Competition Authorities through prosecution and the imposition of penalties is complemented in price-fixing cases by private damage actions, which should affect both cartel deterrence and the prices set by those cartels that do form. We show that the impact of combining penalties and damages on cartel prices is not clearcut, and depends on both the nature of the penalty regime and the way that damages are calculated. We demonstrate this by focusing on two ways of calculating damages that have been advocated in practice and two different forms of the widely used revenue-based penalty regime. When the simple form of revenue-based penalties is in force, the standard method of calculating damages worsens its harmful pricing effects, whereas the proposed alternative method of calculating damages can overturn them. When a more sophisticated form of revenue-based penalties is in operation, imposing damages will improve its beneficial pricing effects under both methods of damage calculation, but the alternative method is more effective. In all cases combining penalties and damages improves deterrence.PostprintPeer reviewe
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