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Opportunistic competition law enforcement

  • Michiel Bijlsma

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  • Roel van Elk

    ()

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    We analyse the interplay between investigation policies, deterrence and desistance in a model where a competition authority monitors multiple sectors and faces a budget constraint that prevents it from deterring cartels in all sectors simultaneously. Most studies of competition law enforcement treat competition authorities as all-knowing, unwavering and benevolent. They do not behave opportunistically, do not face asymmetric information and choose their actions to optimize social welfare. In this paper, we drop one of these assumptions, and study a competition authority that can not commit to a particular investigation strategy. As a consequence, a competition authority’s decisions to investigate will be driven by the (ex-post) desistance effect instead of the (ex ante) deterrence effect of an investigation policy. The resulting opportunistic behaviour may lead to a suboptimal investigation strategy. We find that, in the absence of commitment, developing a sector specific reward scheme based on the number of captured cartels can improve welfare.

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    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 110.

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    Date of creation: Aug 2008
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    Handle: RePEc:cpb:discus:110
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    1. Jean-Jacques Laffont & David Martimort, 1997. "Collusion under Asymmetric Information," Econometrica, Econometric Society, vol. 65(4), pages 875-912, July.
    2. Graetz, Michael J. & Reinganum, Jennifer F. & Wilde, Louis L., . "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," Working Papers 589, California Institute of Technology, Division of the Humanities and Social Sciences.
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    8. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive 527, The Johns Hopkins University,Department of Economics.
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    11. 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.
    12. Laffont, Jean-Jacques, 1994. "The New Economics of Regulation Ten Years After," Econometrica, Econometric Society, vol. 62(3), pages 507-37, May.
    13. Besanko, David & Spulber, Daniel F, 1989. "Antitrust Enforcement under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 99(396), pages 408-25, June.
    14. Connor, John M. & Bolotova, Yuliya, 2006. "Cartel overcharges: Survey and meta-analysis," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1109-1137, November.
    15. Schinkel, Maarten Pieter & Tuinstra, Jan, 2006. "Imperfect competition law enforcement," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1267-1297, November.
    16. Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
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