IDEAS home Printed from https://ideas.repec.org/p/ams/ndfwpp/04-07.html
   My bibliography  Save this paper

Imperfect Competition Law Enforcement

Author

Listed:
  • Schinkel, M.P.
  • Tuinstra, J.

    () (Universiteit van Amsterdam)

Abstract

Competition policy is a subject of often heated debate. Competition authorities, seeking to battle anticompetitive acts in complex cases to the best of their abilities, regularly find themselves advised by rival economic theories and disputed empirical analyses. As a consequence, there is a real possibility that they may occasionally err, missing true violations of competition law or finding firms liable that have actually done nothing but good competition. In this paper, possible consequences of such imperfect competition law enforcement on firm strategies are considered. In a simple cartel setting, it is found that the incidence of anti-competitive behavior increases in both types of enforcement errors: Type II errors decrease expected fines, while Type I errors encourage industries to collude precautionary when they face the risk of false allegations. Hence, fallible antitrust enforcement may stifle genuine competition. Moreover, when enforcement error are non-negligible, competition authorities run the risk of being over-zealous, in the sense that welfare is best served by an authority that is selective in its targeting of alleged anticompetitive acts.

Suggested Citation

  • Schinkel, M.P. & Tuinstra, J., 2004. "Imperfect Competition Law Enforcement," CeNDEF Working Papers 04-07, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  • Handle: RePEc:ams:ndfwpp:04-07
    as

    Download full text from publisher

    File URL: http://cendef.uva.nl/binaries/content/assets/subsites/amsterdam-school-of-economics/amsterdam-school-of-economics-research-institute/cendef/working-papers-2004/icle0604.pdf?1417180970295
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
    2. Png, I. P. L., 1986. "Optimal subsidies and damages in the presence of judicial error," International Review of Law and Economics, Elsevier, vol. 6(1), pages 101-105, June.
    3. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    4. Motta, Massimo & Vasconcelos, Helder, 2005. "Efficiency gains and myopic antitrust authority in a dynamic merger game," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 777-801, December.
    5. Salant, Stephen W, 1987. "Treble Damage Awards in Private Lawsuits for Price Fixing," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1326-1336, December.
    6. Baumol, William J & Ordover, Janusz A, 1985. "Use of Antitrust to Subvert Competition," Journal of Law and Economics, University of Chicago Press, vol. 28(2), pages 247-265, May.
    7. Davies, Stephen W & Driffield, Nigel L & Clarke, Roger, 1999. "Monopoly in the UK: What Determines Whether the MMC Finds against the Investigated Firms?," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 263-283, September.
    8. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
    9. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 651-673, Winter.
    10. Block, Michael Kent & Nold, Frederick Carl, 1981. "The Deterrent Effect of Antitrust Enforcement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 429-445, June.
    11. Lin, Ping, et al, 2000. " The US Antitrust System and Recent Trends in Antitrust Enforcement," Journal of Economic Surveys, Wiley Blackwell, vol. 14(3), pages 255-306, July.
    12. Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262192756, January.
    13. Kaplow, Louis, 1994. "The Value of Accuracy in Adjudication: An Economic Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 307-401, January.
    14. Souam, Said, 2001. "Optimal antitrust policy under different regimes of fines," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 1-26, January.
    15. Hugh C. Briggs III & Kathleen D. Huryn & Mark E. McBride, 1996. "Treble Damages and the Incentive to Sue and Settle," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 770-786, Winter.
    16. Mattoo, Aaditya, 2001. "Can no competition policy be better than some competition policy?," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 55-77, January.
    17. Margaret C. Levenstein & Valerie Y. Suslow, 2002. "What Determines Cartel Success?," UMASS Amherst Economics Working Papers 2002-01, University of Massachusetts Amherst, Department of Economics.
    18. Besanko, David & Spulber, Daniel F, 1989. "Antitrust Enforcement under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 99(396), pages 408-425, June.
    19. Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2007. "The Political Economy of European Merger Control: Evidence using Stock Market Data," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 455-489.
    20. Kaplow, Louis & Shavell, Steven, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 583-606, June.
    21. Baker, Jonathan B, 1988. "Private Information and the Deterrent Effect of Antitrust Damage Remedies," Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(2), pages 385-408, Fall.
    22. Philippe Cyrenne, 1999. "On Antitrust Enforcement and the Deterrence of Collusive Behaviour," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(3), pages 257-272, May.
    23. Ghosal, Vivek & Gallo, Joseph, 2001. "The cyclical behavior of the Department of Justice's antitrust enforcement activity," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 27-54, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Katsoulacos, Yannis & Ulph, David, 2014. "Decision Errors, Legal Uncertainty and Welfare: a General Treatment," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-09, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Lang, Matthias, 2017. "Legal uncertainty as a welfare enhancing screen," European Economic Review, Elsevier, vol. 91(C), pages 274-289.
    3. Michiel Bijlsma & Roel van Elk, 2008. "Opportunistic competition law enforcement," CPB Discussion Paper 110, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Hüschelrath, Kai, 2009. "Methodologische Grundlagen einer Evaluation von Wettbewerbspolitik," ZEW Discussion Papers 09-084, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Yannis Katsoulacos & David Ulph, 2016. "Legal uncertainty, competition law enforcement procedures and optimal penalties," European Journal of Law and Economics, Springer, vol. 41(2), pages 255-282, April.
    6. Juwon Kwak, 2016. "Optimal antitrust enforcement: information cost and deterrent effect," European Journal of Law and Economics, Springer, vol. 41(2), pages 371-391, April.
    7. Tim Reuter, 2016. "Private antitrust enforcement and the role of harmed parties in public enforcement," European Journal of Law and Economics, Springer, vol. 41(3), pages 479-507, June.
    8. Tim Reuter, 2012. "Private antitrust enforcement revisited: The role of private incentives to report evidence to the antitrust authority," Working Paper Series of the Department of Economics, University of Konstanz 2012-04, Department of Economics, University of Konstanz.
    9. Yannis Katsoulacos & David Ulph, 2014. "Decision Errors, Legal Uncertainty and Welfare: a General Treatment," Discussion Paper Series, Department of Economics 201408, Department of Economics, University of St. Andrews.
    10. Guimarães, Bernardo & Salama, Bruno Meyerhof, 2017. "Contingent judicial deference: theory and application to usury laws," Textos para discussão 440, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    11. Damien Neven & Hans Zenger, 2008. "Ex Post Evaluation of Enforcement: A Principal-Agent Perspective," De Economist, Springer, vol. 156(4), pages 477-490, December.
    12. Claudio Calcagno, 2012. "Stand-alone private antitrust damages: (how) should competition authorities react?," European Journal of Law and Economics, Springer, vol. 34(2), pages 365-389, October.
    13. Ghebrihiwet, N. & Motchenkova, E.I., 2010. "Leniency programs in the presence of judicial errors," Serie Research Memoranda 0008, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    14. repec:eee:indorg:v:53:y:2017:i:c:p:326-352 is not listed on IDEAS
    15. repec:oup:jcomle:v:7:y:2011:i:1:p:165-204. is not listed on IDEAS
    16. Will, Birgit E. & Schmidtchen, Dieter, 2008. "Fighting cartels: some economics of council regulation (EC) 1/2003," CSLE Discussion Paper Series 2008-02, Saarland University, CSLE - Center for the Study of Law and Economics.
    17. repec:oup:jcomle:v:4:y:2008:i:1:p:1-30. is not listed on IDEAS
    18. Guimaraesy, Bernardo & Meyerhof Salama, Bruno, 2017. "Contingent judicial deference: theory and application to usury laws," LSE Research Online Documents on Economics 86146, London School of Economics and Political Science, LSE Library.
    19. Katsoulacos, Yannis & Ulph, David, 2014. "Legal Uncertainty, Competition Law Enforcement Procedures and Optimal Penalties," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-12, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Paolo Buccirossi & Lorenzo Ciari & Tomaso Duso & Giancarlo Spagnolo & Cristiana Vitale, 2011. "Measuring The Deterrence Properties Of Competition Policy: The Competition Policy Indexes," Journal of Competition Law and Economics, Oxford University Press, vol. 7(1), pages 165-204.
    21. Lars Sørgard, 2009. "OPTIMAL MERGER POLICY: ENFORCEMENT VS. DETERRENCE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 438-456, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ams:ndfwpp:04-07. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cees C.G. Diks). General contact details of provider: http://edirc.repec.org/data/cnuvanl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.