Antitrust Enforcement Under Endogenous Fines and Price-Dependent Detection Probabilities

Houba, Harold; Motchenkova, Evgenia; Wen, Quan

doi:10.2139/ssrn.1593549

Cited by 13 publications

(17 citation statements)

References 15 publications

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“…Under ex-post 2 Profit maximization under nonbinding equilibrium conditions is investigated in Block et al (1981), Harrington (2005) and Houba et al (2010). Harrington (2004) shows that the equilibrium conditions must be nonbinding in case of sufficiently large discount factors.…”

Section: Introductionmentioning

confidence: 99%

The Effects of Leniency on Cartel Pricing

Houba

Motchenkova

Wen

2015

The B.E. Journal of Theoretical Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe analyze how leniency affects cartel pricing in an infinitely-repeated oligopoly model where the fine rates are linked to illegal gains and detection probabilities depend on the degree of collusion. A novel aspect of this study is that we focus on the worst possible outcome. We investigate the maximal cartel price, the largest price for which the conditions for sustainability hold. We analyze how the maximal cartel price supported by different cartel strategies adjusts in response to the introduction of (ex-ante and ex-post) leniency programs. We disentangle the effects of traditional antitrust enforcement, leniency, and cartel strategies on the maximal cartel price. Exante leniency cannot reduce the maximal cartel price below the price under antitrust without leniency. On the other hand, for ex-post leniency, improvement is possible and granting full immunity to single-reporting firms achieves the largest reduction in the maximal cartel price. To reduce adverse effects under both leniency programs, fine reductions to multiple-reporting firms should be moderate or absent. Finally, ex-post leniency should provide less generous fine reductions to multiple-reporting firms, which is supported by the current practice in the US and the EU.

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Section: Introductionmentioning

confidence: 99%

The Effects of Leniency on Cartel Pricing

Houba

Motchenkova

Wen

2015

The B.E. Journal of Theoretical Economics

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“…Houba et al (2010Houba et al ( , 2012 also explore the possibility that penalties might be related to the cartel's price/overcharge.…”

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confidence: 99%

Antitrust Penalties and the Implications of Empirical Evidence on Cartel Overcharges

Katsoulacos

Ulph

2013

The Economic Journal

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This article makes two contributions to the literature linking penalties charged by competition authorities to observed cartel price overcharges. (i) It extends the theory of optimal penalties by introducing new considerations regarding the timing of penalty decisions. Drawing on a new European data set to calculate these additional factors, the optimal penalty is shown to be approximately 75% of that implied by the conventional formula. (ii) It shows that because penalties are typically imposed on revenue, a tougher regime may increase cartel overcharges. This calls into question some recent empirical findings on this issue and the potential benefits of raising penalties.

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“…Bageri et al (2013) and Katsoulacos and Ulph (2013)); fines based on illegal gains (see e.g. Harrington (2004Harrington ( , 2005, Houba et al (2010Houba et al ( , 2012 or Hunold (2013)); fines based on cartel overcharge (see 5 See in particular the recent series of papers by Levenstein and Suslow (2011, 2014 that contain reviews and extensive references to the relevant literature. 6 By contrast the alternative penalty bases -revenue or illegal gains/profits -while also depending on the cartel overcharge also depend on the cartel output, which in turn depends negatively on the cartel price thus diluting the incentive to lower prices.…”

Section: Introductionmentioning

confidence: 99%

Penalizing Cartels: The Case for Basing Penalties on Price Overcharge

Katsoulacos

Motchenkova²,

Ulph

2014

SSRN Journal

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In this paper we set out the welfare economics based case for imposing cartel penalties on the cartel overcharge rather than on the more conventional bases of revenue or profits (illegal gains). To do this we undertake a systematic comparison of a penalty based on the cartel overcharge with three other penalty regimes: fixed penalties; penalties based on revenue, and penalties based on profits. Our analysis is the first to compare these regimes in terms of their impact on both (i) the prices charged by those cartels that do form; and (ii) the number of stable cartels that form (deterrence). We show that the class of penalties based on profits is identical to the class of fixed penalties in all welfare-relevant respects. For the other three types of penalty we show that, for those cartels that do form, penalties based on the overcharge produce lower prices than those based on profit) while penalties based on revenue produce the highest prices. Further, in conjunction with the above result, our analysis of cartel stability (and thus deterrence), shows that penalties based on the overcharge out-perform those based on profits, which in turn outperform those based on revenue in terms of their impact on each of the following welfare criteria: (a) average overcharge; (b) average consumer surplus; (c) average total welfare.

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Antitrust Enforcement Under Endogenous Fines and Price-Dependent Detection Probabilities

Cited by 13 publications

References 15 publications

The Effects of Leniency on Cartel Pricing

The Effects of Leniency on Cartel Pricing

Antitrust Penalties and the Implications of Empirical Evidence on Cartel Overcharges

Penalizing Cartels: The Case for Basing Penalties on Price Overcharge

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