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Antitrust enforcement with price-dependent fines and detection probabilities

Author

Listed:
  • Harold Houba

    () (VU University of Amsterdam)

  • Evgenia Motchenkova

    () (VU University of Amsterdam)

  • Quan Wen

    () (Vanderbilt University)

Abstract

We analyze the effectiveness of antitrust enforcement in repeated oligopoly models in which both fines and detection probabilities depend on the cartel price. Such fines reflect actual guidelines. Inspections based on monitoring of market prices imply endogenous detection probabilities. Without monitoring, fines that are either fixed or proportional to illegal gains cannot eradicate the monopoly price, but more-than-proportional fines can. Policy design with inspections based on price-monitoring implies that the profit-maximizing cartel price always lies below the monopoly price independently of the fine structure. These results offer partial support for the current practice of monitoring and more-than-proportional fines.

Suggested Citation

  • Harold Houba & Evgenia Motchenkova & Quan Wen, 2010. "Antitrust enforcement with price-dependent fines and detection probabilities," Economics Bulletin, AccessEcon, vol. 30(3), pages 2017-2027.
  • Handle: RePEc:ebl:ecbull:eb-10-00308
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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I3-P185.pdf
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    References listed on IDEAS

    as
    1. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 409-436.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, pages 950-959.
    3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, pages 297-308.
    4. Abigail Barr & Chris Wallace & Jean Ensminger & Juan Camilo Cárdenas, 2009. "Homo Æqualis: A Cross-Society Experimental Analysis of Three Bargaining Games," DOCUMENTOS CEDE 005427, UNIVERSIDAD DE LOS ANDES-CEDE.
    5. J. Peter Neary, 2009. "Putting the "New" into New Trade Theory: Paul Krugman's Nobel Memorial Prize in Economics," Scandinavian Journal of Economics, Wiley Blackwell, pages 217-250.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Laurent Callot & Johannes Tang Kristensen, 2014. "Vector Autoregressions with Parsimoniously Time Varying Parameters and an Application to Monetary Policy," CREATES Research Papers 2014-41, Department of Economics and Business Economics, Aarhus University.
    2. Katsoulacos, Yannis & Motchenkova, Evgenia & Ulph, David, 2014. "Penalizing Cartels: The Case for Basing Penalties on Price Overcharge," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-15, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Florence THEPOT & Jacques THEPOT, 2017. "Collusion, Managerial incentives and antitrust fines," Working Papers of LaRGE Research Center 2017-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    4. Houba Harold & Motchenkova Evgenia & Wen Quan, 2015. "The Effects of Leniency on Cartel Pricing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(2), pages 351-389, July.
    5. Yannis Katsoulacos & Evgenia (E.) Motchenkova & David Ulph, 2017. "Penalising on the basis of the severity of the offence: A sophisticated revenue-based cartel penalty," Tinbergen Institute Discussion Papers 17-120/VII, Tinbergen Institute.
    6. Katsoulacos, Yannis & Motchenkova, Evgenia & Ulph, David, 2015. "Penalizing cartels: The case for basing penalties on price overcharge," International Journal of Industrial Organization, Elsevier, pages 70-80.

    More about this item

    Keywords

    Repeated game; Cartel; Oligopoly; Antitrust enforcement; Competition policy;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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