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The Bankruptcy Wildcard in Cartel Cases

Author

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  • Andreas Stephan

    () (Centre for Competition Policy, University of East Anglia)

Abstract

Where fines are the only available sanction against cartels there is a trade-off between increased deterrence and the increased risk of insolvency. Higher fines are unacceptable to the European Commission because of the costs and uncertainties associated with bankruptcy. These concerns have led to the emergence of a 'financial constraints' discount which is applied with a lack of transparency and may be strongly influenced by the EC treaty objectives of protecting employment and social justice. Such bankruptcy discounts encourage infringing firms to paint as gloomy a picture of their financial situation as possible to reduce their cost of collusion. They also provoke cartel members into raising prices further, safe in the knowledge that they will never incur fines high enough to threaten their financial viability. The existence in the US of a parallet 'loose' bankruptcy discount allows international infringing firms to cite sanctions previously incurred in the US as grounds for 'financial constraints' in Europe. The effect is lower fines to the detriment of EC deterrence and international enforcement.

Suggested Citation

  • Andreas Stephan, 2006. "The Bankruptcy Wildcard in Cartel Cases," Working Papers 06-5, Centre for Competition Policy, University of East Anglia.
  • Handle: RePEc:ccp:wpaper:wp06-05
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP06-5.pdf
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    Keywords

    Cartels; deterrence; bankruptcy; EC; US;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • 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

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