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Capture, Politics and Antitrust Effectiveness

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Abstract

We study the ex-ante budget devoted by a Political Principal to a Competition Authority in charge of collecting evidence on the Industry's behavior. The Industry can capture both the Principal (lobbying) for a reduced budget, and the Authority (side-contracting) so as to avoid fines. Authority's capture is costly to the Principal when side-contracting is sufficiently efficient. Collusion proofness induces high-powered incentives for the Authority, hence fostering the Authority's willingness to spend the allocated budget. For intermediate values of side-contracting's efficiency, in this moral hazard setting we find that the optimal budget increases as side-contracting gets more efficient. Only when side-contracting's efficiency reaches high enough values the budget decreases, thus generating a discrepancy between the Authority's and the Principal's desired level of information gathering. Finally, a complementarity between lobbying of the Principal and capture of the Authority arises.

Suggested Citation

  • Rocco Ciciretti & Simone Meraglia & Gustavo Piga, 2011. "Capture, Politics and Antitrust Effectiveness," CEIS Research Paper 208, Tor Vergata University, CEIS, revised 05 Apr 2013.
    • Handle: RePEc:rtv:ceisrp:208
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    More about this item

    Keywords

    Budget; Law Enforcement; Three-tier Hierarchy; Moral Hazard; Collusion-Proofness; Lobbying.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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