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Opportunistic competition law enforcement

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  • Michiel Bijlsma

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  • Roel van Elk

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    Abstract

    We analyse the interplay between investigation policies, deterrence and desistance in a model where a competition authority monitors multiple sectors and faces a budget constraint that prevents it from deterring cartels in all sectors simultaneously. Most studies of competition law enforcement treat competition authorities as all-knowing, unwavering and benevolent. They do not behave opportunistically, do not face asymmetric information and choose their actions to optimize social welfare. In this paper, we drop one of these assumptions, and study a competition authority that can not commit to a particular investigation strategy. As a consequence, a competition authority’s decisions to investigate will be driven by the (ex-post) desistance effect instead of the (ex ante) deterrence effect of an investigation policy. The resulting opportunistic behaviour may lead to a suboptimal investigation strategy. We find that, in the absence of commitment, developing a sector specific reward scheme based on the number of captured cartels can improve welfare.

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    Bibliographic Info

    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 110.

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    Date of creation: Aug 2008
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    Handle: RePEc:cpb:discus:110

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