Computing Cartel Overcharges: when theory meets practice

Abstract

Success in law enforcement of cartel cases hinges on solid investigation procedures and effective punishment. However, the existing legal framework provides guidance on computing fines based on sales revenue, even though it mentions such fines must be no lower than cartel gains. Using data from a real case in Brazil, this paper has two aims: (i) reviewing the difficulties associated with computing cartel overcharges and (ii) checking whether the fines levied on convicted firms are in line with these overcharges. We employ three methodologies to compute these overcharges. We find cartel overcharges estimates might be quite sensitive to its assumptions, but apart from differences in differences models with quadratic and cubic trends the fines are in the middle of the range of cartel overcharge estimates. This indicates that the fines are in line with cartel overcharges, but it is recommended to use a set of estimates produced by different methods to ensure their adequacy.