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The Determination of Optimal Fines in Cartel Cases - The Myth of Underdeterrence

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  • Marie-Laure Allain
  • Marcel Boyer

    ()

  • Rachidi Kotchoni
  • Jean-Pierre Ponssard

Abstract

The determination of optimal fines to deter the formation or continuation of cartels is a major objective of competition policy. We provide an analysis of static and dynamic frameworks to characterize the restitution and deterrence properties of fines: cartel stability depends on their ability to prevent deviation by firms, while the benefit of a deviation depends on the fines to be imposed in case of detection by the antitrust authority. We show that the proper consideration of the dynamics of competition has a major impact on the determination of optimal dissuasive fines: our results suggest that a clear majority of fines imposed by the European Commission in recent years meet the deterrence objective. La détermination d’amendes optimales pour dissuader la formation ou la poursuite des cartels est au cœur des politiques de concurrence. Nous définissons un cadre stratégique pour caractériser le caractère restitutif et dissuasif des amendes dans des contextes statique et dynamique : la stabilité d’un cartel dépend de sa capacité à prévenir les déviations dont la profitabilité est fonction des amendes imposées lorsque le cartel est découvert. Nous montrons que la prise en compte appropriée de la dynamique de la concurrence a un impact majeur sur la détermination des amendes dissuasives optimales : nos résultats suggèrent qu’une nette majorité des amendes infligées par la Commission Européenne ces dernières années rencontrent l'objectif de dissuasion.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2011s-34.

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Date of creation: 01 Mar 2011
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Handle: RePEc:cir:cirwor:2011s-34

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Keywords: Optimal fines; cartels; Amendes optimales; cartels;

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References

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  1. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 651-673, Winter.
  2. Marcel Boyer & Tracy R. Lewis & Wei Lin Liu, 2000. "Setting standards for credible compliance and law enforcement," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 319-340, May.
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  5. Marcel Boyer & Pierre Lasserre & Michel Moreaux, 2011. "A Dynamic Duopoly Investment Game without Commitment under Uncertain Market Expansion," CIRANO Working Papers 2011s-65, CIRANO.
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  9. Ponssard, Jean-Pierre, 1991. "Forward induction and sunk costs give average cost pricing," Games and Economic Behavior, Elsevier, vol. 3(2), pages 221-236, May.
  10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  11. 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.
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  13. Connor, John M., 2005. "Price-Fixing Overcharges: Legal And Economic Evidence," 2005 Annual meeting, July 24-27, Providence, RI 19254, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Aubert, Cécile & Rey, Patrick & Kovacic, William E., 2006. "The impact of leniency and whistle-blowing programs on cartels," Economics Papers from University Paris Dauphine 123456789/13637, Paris Dauphine University.
  15. Garoupa, Nuno, 2001. "Optimal magnitude and probability of fines," European Economic Review, Elsevier, vol. 45(9), pages 1765-1771, October.
  16. Bryant, Peter G & Eckard, E Woodrow, Jr, 1991. "Price Fixing: The Probability of Getting Caught," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 531-36, August.
  17. Aubert, Cecile & Rey, Patrick & Kovacic, William E., 2006. "The impact of leniency and whistle-blowing programs on cartels," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1241-1266, November.
  18. Marcel Boyer & Rachidi Kotchoni, 2011. "The Econometrics of Cartel Overcharges," CIRANO Working Papers 2011s-35, CIRANO.
  19. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
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  21. Block, Michael Kent & Nold, Frederick Carl, 1981. "The Deterrent Effect of Antitrust Enforcement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 429-45, June.
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Citations

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Cited by:
  1. Boyer, Marcel & Kotchoni, Rachidi, 2014. "How Much Do Cartels Overcharge?," TSE Working Papers 14-462, Toulouse School of Economics (TSE).
  2. Marcel Boyer & Rachidi Kotchoni, 2012. "How Much Do Cartels Typically Overcharge?," CIRANO Working Papers 2012s-15, CIRANO.
  3. E. Dargaud & A. Mantovani & C. Reggiani, 2013. "The fight against cartels: a transatlantic perspective," Working Papers wp894, Dipartimento Scienze Economiche, Universita' di Bologna.

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