Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, January 28, 2010

Am I a Price-Fixer? A Behavioral Economics Analysis of Cartels

Posted by D. Daniel Sokol

Maurice "My Middle name is 'Eital' but it really should be 'I eat, read and sleep Behavioral Economics'" Stucke (Tennessee - Law) asks, Am I a Price-Fixer? A Behavioral Economics Analysis of Cartels.

ABSTRACT: This article considers why executives risk prison, their careers, and their status in the community, and violate the antitrust laws. The generally accepted approach today is that price-fixers behave as “rational” profit-maximizers. Executives engage in a cost-benefit analysis to see if the benefits from the crime are worth taking the risks. To achieve optimal deterrence, the economic theory goes, the antitrust penalty should equal the violation’s expected net harm to others (plus enforcement costs) divided by the probability of detection and proof of the violation. Despite increasing antitrust fines and jail sentences, cartels continue to exist. Before the United States responds with greater fines and jail sentences, it makes sense to evaluate several assumptions underlying optimal deterrence theory. In reviewing the behavioral economics literature, policymakers will have a better grasp of the situational and dispositional factors that promote price-fixing.

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