Saturday, August 9, 2008
Posted by D. Daniel Sokol
Birgit E. Will and Dieter Schmidtchen both of Saarland University - Center for the Study of Law and Economics address Fighting Cartels: Some Economics of Council Regulation (EC) 1/2003.
ABSTRACT: This paper investigates the effectiveness of the new Council Regulation (EC) 1/2003 which replaces the mandatory notification and authorization system by a legal exception system. Effectiveness is operationalized via the two subcriteria compliance to Art. 81 EC Treaty and the probabilities of type I and type II errors committed by the European Commission. We identify four different types of Perfect Bayesian Nash Equilibria: full-compliance, zero-compliance, positive-compliance and full-deterrence. We show that the Commission can, in principle, hit the full-compliance equilibrium, where the cartelizing firms fully obey the requirements of Art 81(3) EC Treaty and both error probabilities are zero.