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Imperfect Competition Law Enforcement

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Author Info
Schinkel, M.P.
Tuinstra, J. () (Universiteit van Amsterdam)

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Abstract

Competition policy is a subject of often heated debate. Competition authorities, seeking to battle anticompetitive acts in complex cases to the best of their abilities, regularly find themselves advised by rival economic theories and disputed empirical analyses. As a consequence, there is a real possibility that they may occasionally err, missing true violations of competition law or finding firms liable that have actually done nothing but good competition. In this paper, possible consequences of such imperfect competition law enforcement on firm strategies are considered. In a simple cartel setting, it is found that the incidence of anti-competitive behavior increases in both types of enforcement errors: Type II errors decrease expected fines, while Type I errors encourage industries to collude precautionary when they face the risk of false allegations. Hence, fallible antitrust enforcement may stifle genuine competition. Moreover, when enforcement error are non-negligible, competition authorities run the risk of being over-zealous, in the sense that welfare is best served by an authority that is selective in its targeting of alleged anticompetitive acts.

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Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 04-07.

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Date of creation: 2004
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Handle: RePEc:ams:ndfwpp:04-07

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
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  1. Lin, Ping, et al, 2000. " The US Antitrust System and Recent Trends in Antitrust Enforcement," Journal of Economic Surveys, Blackwell Publishing, vol. 14(3), pages 255-306, July. [Downloadable!] (restricted)
  2. Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2002. "The Political Economy of European Merger Control: Evidence using Stock Market Data," CIG Working Papers FS IV 02-34, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
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  3. Baker, Jonathan B, 1988. "Private Information and the Deterrent Effect of Antitrust Damage Remedies," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(2), pages 385-408, Fall.
  4. Baumol, William J & Ordover, Janusz A, 1985. "Use of Antitrust to Subvert Competition," Journal of Law & Economics, University of Chicago Press, vol. 28(2), pages 247-65, May.
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  6. Davies, Stephen W & Driffield, Nigel L & Clarke, Roger, 1999. "Monopoly in the UK: What Determines Whether the MMC Finds against the Investigated Firms?," Journal of Industrial Economics, Blackwell Publishing, vol. 47(3), pages 263-83, September. [Downloadable!] (restricted)
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  7. Mattoo, Aaditya, 2001. "Can no competition policy be better than some competition policy?," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 55-77, January. [Downloadable!] (restricted)
  8. Ghosal, Vivek & Gallo, Joseph, 2001. "The cyclical behavior of the Department of Justice's antitrust enforcement activity," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 27-54, January. [Downloadable!] (restricted)
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  11. Massimo MOTTA & Helder VASCONCELOS, 2003. "Efficiency Gains and Myopic Antitrust Authority in a Dynamic Merger Game," Economics Working Papers ECO2003/23, European University Institute. [Downloadable!]
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  12. Philippe Cyrenne, 1999. "On Antitrust Enforcement and the Deterrence of Collusive Behaviour," Review of Industrial Organization, Springer, vol. 14(3), pages 257-272, May. [Downloadable!] (restricted)
  13. Salant, Stephen W, 1987. "Treble Damage Awards in Private Lawsuits for Price Fixing," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1326-36, December. [Downloadable!] (restricted)
  14. Joseph E Harrington Jr, 2002. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Economics Working Paper Archive 487, The Johns Hopkins University,Department of Economics, revised May 2003. [Downloadable!]
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  15. Souam, Said, 2001. "Optimal antitrust policy under different regimes of fines," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 1-26, January. [Downloadable!] (restricted)
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  16. Hugh C. Briggs III & Kathleen D. Huryn & Mark E. McBride, 1996. "Treble Damages and the Incentive to Sue and Settle," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 770-786, Winter. [Downloadable!] (restricted)
  17. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169. [Downloadable!] (restricted)
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