Modelling the Diffusion of the Deterrent Effects of Competition Policy

Abstract

Through its competition policy interventions, the European Commission not only addresses infringements of EU competition law by the firms directly involved but also deters possible future anticompetitive behaviour by these firms and other market players. The present paper associates deterrence with the diffusion of information about the competition authority’s interventions to market players. In the mixed-influence diffusion model developed below, competition policy interventions act as an external signal sent to market players. Interactions between market players, in particular through legal counsels and law firms, further propagate the interventions’ deterrent effects. The focus of the model simulations is on interventions by the European Commission. The parameters of the mixed-influence diffusion model are calibrated using survey-based information on the order of magnitude of the deterrent effects of competition policy interventions and an assessment of the reputation of the European Commission as an enforcer of EU competition rules. On this basis, estimates of the deterrent effect of each individual intervention by the European Commission can be obtained. In addition, the sensitivity of the deterrent effects of competition policy interventions to the reputation of the competition authority and to the importance of interactions between market participants is analysed.