Thursday, April 19, 2012
Posted by D. Daniel Sokol
Philippe Chone (ENSAE and CREST), Said Souam (Universite Paris Ouest Nanterre La Defense (EconomiX) and CREST) and Arnold Vialfont (Universite Paris-Est) have written on Commitments in Antitrust.
ABSTRACT: Competition agencies have the power to close an antitrust case in return for the commitment to end the alleged infringement. We examine how such a procedure affects deterrence and consumer welfare. We first show that it lowers the deterrent effect of competition policy. However, under asymmetric information, commitments may enhance consumer surplus with shortened proceedings and avoidance of trial type-II errors. The variation of consumer harm w.r.t. the firm's gain from the practice determines the optimal usage frequency of this negotiation tool. Finally, we show that trial and commitments may be complements as the latter is not always an answer to a lack of efficiency of the agency.