Bigoni, Maria () (University of Padua) Le Coq, Chloé () (SITE, Stockholm School of Economics) Fridolfsson, Sven-Olof () (Institutet för Näringslivsforskning (IFN) (Research Institute of Industrial Economics)) Spagnolo, Giancarlo () (Università di Roma Tor Vergata)
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In this paper we investigate the effects of risk preferences and attitudes towards risk on optimal antitrust enforcement policies. First, we observe that risk aversion is negatively correlated with players’ proclivity to form a cartel, and that increasing the level of fines while reducing the probability of detection enhance deterrence. This confirms that the design of an optimal law enforcement scheme must keep risk attitudes into account, as suggested by Polinsky and Shavell. We also notice that players' ’propensity towards communication drops right after detection even if the collusive agreement was successful, and it declines as the sum of the fines paid by a subject increases. This effect could be explained by availability heuristic, –a cognitive bias, where people’s perception of a risk is based on its vividness and emotional impact rather than on its actual probability. Our results also confirm the crucial role of strategic risk considerations (analogous to risk dominance for one shot games) in determining the effects of leniency programs. Indeed, we show that the effectiveness of leniency programs in deterring cartels is mostly due to the increased risk of a cartel member being cheated upon when entering a collusive agreement, while the risk of a cartel being detected by an autonomous investigation of the Authority seems to play a less important role.
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Length: 22 pages Date of creation: 22 Feb 2008 Date of revision: Handle: RePEc:hhs:hastef:0696
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Find related papers by JEL classification: C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
References listed on IDEAS 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.:
Paola Sapienza & Anna Toldra & Luigi Zingales, 2007.
"Understanding Trust,"
NBER Working Papers
13387, National Bureau of Economic Research, Inc.
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