Cartels and Fines

Cartels and Fines

Research Handbook on Cartels, Peter Whelan (ed) (Edward Elgar Publishing, Forthcoming)

Florian Smuda

University of Applied Sciences Koblenz

Abstract

This chapter deals with cartel fines as sanctions to deter cartelization. The concept of cartel fines as a deterrent is based on the premise that a potential cartelist will refrain from joining a cartel if the expected fine will exceed or at least offset any cartel gains. Based on a simple formal framework it is shown that the optimal deterrent fine level – expressed as a fraction of the value of cartel affected sales – is approximated by the cartel overcharge rate divided by the probability of detection. Using a dataset that contains undertaking specific data for all cartel cases decided by the European Commission between 2007 and 2020, it is then analyzed to what extent the existing fining policy fulfills optimal deterrence. By comparing the imposed fines with optimal deterrent fines under different settings for the overcharge and detection rate, the simulation results reveal a noticeable deterrence gap. Accordingly, several alternative and complementing measures suggested in the law and economics literature are compiled with structural remedies being assessed as a particular promising approach to foster deterrence.