Working Paper: CEPR ID: DP9518
Authors: Vasiliki Bageri; Yannis Katsoulacos; Giancarlo Spagnolo
Abstract: In most jurisdictions, antitrust fines are based on affected commerce rather than on collusive profits, and in some others, caps on fines are introduced based on total firm sales rather than on affected commerce. We uncover a number of distortions that these policies generate, propose simple models to characterise their comparative static properties, and quantify them with simulations based on market data. We conclude by discussing the obvious need to depart from these distortive rules-of-thumb that appear to have the potential to substantially reduce social welfare.
Keywords: antitrust; deterrence; fines; law enforcement
JEL Codes: K21; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fines based on revenue (H27) | Firms increase cartel prices above monopoly levels (L12) |
| Firms with lower profit-revenue ratios (D22) | Expect larger fines relative to collusive profits (L49) |
| Fines based on affected commerce (L49) | Distort cartel pricing behavior (D43) |
| Fines based on affected commerce (L49) | Firms set prices above monopoly levels (D42) |
| Fines based on revenue (H27) | Firms inefficiently under-diversify to minimize legal exposure (G34) |