Antitrust Enforcement and Marginal Deterrence
AbstractWe study antitrust enforcement in which the fine must obey four legal principles: punishments should fit the crime, proportionality, bankruptcy considerations, and minimum fines. We integrate these legal principles into an infinitely-repeated oligopoly model. Bankruptcy considerations ensure abnormal cartel profits. We derive the optimal fine schedule that achieves maximal social welfare under these legal principles. This optimal fine schedule induces collusion on a lower price making it more attractive than on higher prices. Also, raising minimum fines reduces social welfare and should never be implemented. Our analysis and results relate to the marginal deterrence literature by Shavell (1992) and Wilde (1992).
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-166/1.
Date of creation: 22 Nov 2011
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Antitrust enforcement; Antitrust Law; Cartel; Oligopoly; Repeated game;
Other versions of this item:
- Houba, H.E.D. & Motchenkova, E. & Wen, Q., 2011. "Antitrust Enforcement and Marginal Deterrence," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2011-056, Tilburg University, Tilburg Law and Economic Center.
- L4 - Industrial Organization - - Antitrust Issues and Policies
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-17 (All new papers)
- NEP-COM-2012-04-17 (Industrial Competition)
- NEP-IND-2012-04-17 (Industrial Organization)
- NEP-REG-2012-04-17 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- C. Detotto & BC. McCannon & M. Vannini, 2013. "A Note on Marginal Deterrence: Evidence," Working Paper CRENoS 201310, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
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