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Announced or Surprise Inspections and Oligopoly Competition

Author

Listed:
  • Dechenaux Emmanuel

    (Department of Economics, Kent State University, Kent, OH 44242, USA)

  • Samuel Andrew

    (Department of Economics, Loyola University Maryland, 4501 N. Charles Street, Baltimore, MD 21210, USA)

Abstract

To enforce compliance, regulators often choose between announced or unannounced (surprise) inspections. We analyze the impact of these inspection regimes on firms’ compliance choices in a multiple stage oligopoly game of quantity competition with endogenous compliance, monitoring and avoidance. In equilibrium, whether unannounced inspections achieve a higher level of compliance than announced inspections depends on the number of firms, demand and the cost of compliance. Furthermore, the impact on compliance of increasing the fine, the supervisor’s wage or the probability of inspections also depends on market size and structure and may be non-monotonic. Finally we provide conditions under which a welfare maximizing regulator will prefer an unannounced to an announced regime. Thus, our results suggest that when choosing the appropriate inspection regime, regulators should account for market characteristics, especially if compliance maximization is the objective.

Suggested Citation

  • Dechenaux Emmanuel & Samuel Andrew, 2019. "Announced or Surprise Inspections and Oligopoly Competition," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(1), pages 1-20, January.
    • Handle: RePEc:bpj:bejeap:v:19:y:2019:i:1:p:20:n:10
    DOI: 10.1515/bejeap-2018-0141
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    References listed on IDEAS

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    Cited by:

    1. Matthew D. Rablen & Andrew Samuel, 2021. "Self‐reporting and Market Structure," Economica, London School of Economics and Political Science, vol. 88(351), pages 782-808, July.

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    More about this item

    Keywords

    detection avoidance; compliance; oligopoly; unannounced inspections; announced inspections;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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