Antitrust Penalties and the Implications of Empirical Evidence on Cartel Overcharges

Authors


  • Research for this paper was supported by a grant from the Economic and Social Research Council RES-062-23-2211 ‘Optimal Decision and Enforcement Structures for Competition Policy’. We are grateful to Kelly Benetatou, Vasiliki Bageri and Jacob Seifert for research assistance. An earlier version of the paper was presented at the CRESSE Workshop on ‘Optimal Decision and Enforcement Structures for Competition Policy’ on 8 July 2012 in Chania. We thank Emanuele Giovanetti, other Workshop participants, Rachel Griffith and a referee for helpful comments. All errors remain our own.

Abstract

This article makes two contributions to the literature linking penalties charged by competition authorities to observed cartel price overcharges. (i) It extends the theory of optimal penalties by introducing new considerations regarding the timing of penalty decisions. Drawing on a new European data set to calculate these additional factors, the optimal penalty is shown to be approximately 75% of that implied by the conventional formula. (ii) It shows that because penalties are typically imposed on revenue, a tougher regime may increase cartel overcharges. This calls into question some recent empirical findings on this issue and the potential benefits of raising penalties.

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