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The Distortive Effects of Antitrust Fines Based on Revenue

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Author Info

  • Spagnolo, Giancarlo

    ()
    (Stockholm Institute of Transition Economics)

  • Bageri, Vasiliki

    ()
    (Athens University of Economics and Business)

  • Katsoulacos, Yannis

    ()
    (Athens University of Economics and Business)

Abstract

In most jurisdictions, antitrust fines are based on affected commerce rather than on collusive profits, and in some others, caps on fines are introduced based on total firm sales rather than on affected commerce. We uncover a number of distortions that these policies generate, propose simple models to characterize their comparative static properties, and quantify them with simulations based on market data. We conclude by discussing the obvious need to depart from these distortive rules-of-thumb that appear to have the potential to substantially reduce social welfare.

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Bibliographic Info

Paper provided by Stockholm Institute of Transition Economics, Stockholm School of Economics in its series SITE Working Paper Series with number 22.

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Length: 23 pages
Date of creation: 08 Dec 2012
Date of revision:
Handle: RePEc:hhs:hasite:0022

Note: We are grateful to David Ulph for important suggestions, and to audiences at the ACLE’s Behavioral Antitrust workshop in Amsterdam, April 2012 and at the CRETE Conference in Milos, July 2012 for their lively discussions. Katsoulacos acknowledges support by the Economic and Social Research Council (ESRC, UK) under grant RES – 062 – 23 – 2211. Spagnolo acknowledges funding from the Swedish Competition Authority (Konkurrenseverket). Corresponding Author: Yannis Katsoulacos, Athens University of Economics and Business, Patision 76, Athens 104 34 Greece (ysk@hol.gr).
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Postal: Stockholm Institute of Transition Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Phone: (+46 8) 736 9670
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Web page: http://www.hhs.se/site/
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Keywords: Antitrust; Deterrence; Fines; Law Enforcement;

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  1. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
  2. Che, Yeon-Koo & Spier, Kathryn, 2006. "Strategic Judgment Proofing," MPRA Paper 6100, University Library of Munich, Germany.
  3. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
  4. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
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Cited by:
  1. Jensen, Sissel & Kvaløy, Ola & Olsen, Trond & Sørgard, Lars, 2013. "Crime and punishment: When tougher antitrust enforcement leads to higher overcharge," UiS Working Papers in Economics and Finance 2013/2, University of Stavanger.

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