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Antitrust enforcement with price-dependent fines and detection probabilities

Listed author(s):
  • Harold Houba


    (VU University of Amsterdam)

  • Evgenia Motchenkova


    (VU University of Amsterdam)

  • Quan Wen


    (Vanderbilt University)

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.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 3 ()
Pages: 2017-2027

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Handle: RePEc:ebl:ecbull:eb-10-00308
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