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An inspector calls: On the optimality of warning firms about ongoing inspections in antitrust policy

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  • Avramovich, María C.

Abstract

This paper investigates the effects of disclosing information about the likelihood of an inspection on the sustainability of cartels. To this end, I develop a model in which the Antitrust Authority can credibly disclose this type of information before firms make strategic decisions. In this way, the Antitrust Authority can distort the optimal behavior of the cartel firms related to production and cartel activities between inspection periods and non-inspection periods. I show how this can destabilize some cartel agreements, but it can also create productive inefficiencies not considered in standard models of collusion, to the extent that it induces cartel firms to devote costly resources to cartel activities.

Suggested Citation

  • Avramovich, María C., 2025. "An inspector calls: On the optimality of warning firms about ongoing inspections in antitrust policy," International Review of Law and Economics, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:irlaec:v:81:y:2025:i:c:s0144818824000644
    DOI: 10.1016/j.irle.2024.106244
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    More about this item

    Keywords

    Antitrust policy; Inspection; Private information; Productive efficiency; Social welfare;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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