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The Determination of Optimal Fines in Cartel Cases - The Myth of Underdeterrence

  • Marie-Laure Allain
  • Marcel Boyer
  • Rachidi Kotchoni
  • Jean-Pierre Ponssard

The determination of optimal fines to deter the formation or continuation of cartels is a major objective of competition policy. We provide an analysis of static and dynamic frameworks to characterize the restitution and deterrence properties of fines: cartel stability depends on their ability to prevent deviation by firms, while the benefit of a deviation depends on the fines to be imposed in case of detection by the antitrust authority. We show that the proper consideration of the dynamics of competition has a major impact on the determination of optimal dissuasive fines: our results suggest that a clear majority of fines imposed by the European Commission in recent years meet the deterrence objective. La détermination d'amendes optimales pour dissuader la formation ou la poursuite des cartels est au cur des politiques de concurrence. Nous définissons un cadre stratégique pour caractériser le caractère restitutif et dissuasif des amendes dans des contextes statique et dynamique : la stabilité d'un cartel dépend de sa capacité à prévenir les déviations dont la profitabilité est fonction des amendes imposées lorsque le cartel est découvert. Nous montrons que la prise en compte appropriée de la dynamique de la concurrence a un impact majeur sur la détermination des amendes dissuasives optimales : nos résultats suggèrent qu'une nette majorité des amendes infligées par la Commission Européenne ces dernières années rencontrent l'objectif de dissuasion.

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File URL: http://www.cirano.qc.ca/files/publications/2011s-34.pdf
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Paper provided by CIRANO in its series CIRANO Working Papers with number 2011s-34.

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Length: 38 pages
Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:cir:cirwor:2011s-34
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  1. Garoupa, Nuno, 2001. "Optimal magnitude and probability of fines," European Economic Review, Elsevier, vol. 45(9), pages 1765-1771, October.
  2. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  3. Joseph E Harrington Jr, 2002. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Economics Working Paper Archive 487, The Johns Hopkins University,Department of Economics, revised May 2003.
  4. Boyer, Marcel & Lasserre, Pierre & Moreaux, Michel, 2012. "A dynamic duopoly investment game without commitment under uncertain market expansion," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 663-681.
  5. Aubert, Cecile & Rey, Patrick & Kovacic, William E., 2006. "The impact of leniency and whistle-blowing programs on cartels," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1241-1266, November.
  6. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  7. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  8. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
  9. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  11. 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.
  12. Ponssard, Jean-Pierre, 1991. "Forward induction and sunk costs give average cost pricing," Games and Economic Behavior, Elsevier, vol. 3(2), pages 221-236, May.
  13. Connor, John M., 2005. "Price-Fixing Overcharges: Legal And Economic Evidence," 2005 Annual meeting, July 24-27, Providence, RI 19254, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
  15. Marcel Boyer & Tracy Lewis & Wei Lin Liu, 1996. "Setting Standards for Credible Compliance and Law Enforcement," CIRANO Working Papers 96s-27, CIRANO.
  16. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  17. 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 429-45, June.
  18. Gromb, Denis & Ponssard, Jean-Pierre & Sevy, David, 1997. "Selection in Dynamic Entry Games," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 62-84, October.
  19. Bryant, Peter G & Eckard, E Woodrow, Jr, 1991. "Price Fixing: The Probability of Getting Caught," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 531-36, August.
  20. Marcel Boyer & Rachidi Kotchoni, 2011. "The Econometrics of Cartel Overcharges," CIRANO Working Papers 2011s-35, CIRANO.
  21. Demange, Gabrielle & Ponssard, Jean-Pierre, 1985. "Asymmetries in cost structures and incentives towards price competition," International Journal of Industrial Organization, Elsevier, vol. 3(1), pages 85-100, March.
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