Monday, April 25, 2011
Posted by D. Daniel Sokol
Marie-Laure Allain, Ecole Polytechnique, Paris - Laboratoire d'Econometrie, Marcel Boyer, University of Montreal - Department of Economics, Center for Interuniversity Research and Analysis on Organization (CIRANO), Rachidi Kotchoni, Laval University - CRÉA, and Jean Pierre Ponssard, Ecole Polytechnique, Paris - Laboratoire d'Econometrie have an interesting new paper on The Determination of Optimal Fines in Cartel Cases: The Myth of Underdeterrence.
ABSTRACT: The determination of optimal fines to deter the formation or continuation of cartels is a major objective of competition policy. We provide a game theoretic discussion of the restitution and deterrence properties of fines static and dynamic frameworks: cartel stability depends on their ability to prevent deviation by firms and the benefit of a deviation depends on the fines to be imposed in case of detection by the antitrust authority. We show that the proper consideration of the dynamics of competition has a major impact on the determination of optimal dissuasive fines: our results suggest that a clear majority of fines imposed by the European Commission in recent years meet the deterrence objective.