The Distortive Effects of Antitrust Fines Based on Revenue
- We are grateful to David Ulph for important suggestions and to audiences at the ACLE's Behavioural Antitrust workshop in Amsterdam, April 2012, at the CRETE Conference in Milos, July 2012 and at the International Industrial Organisation Conference in Boston, May 2013 for their lively discussions. We also thank the discussant Gordon Klein (DICE) for his valuable comments at IIOC. Katsoulacos acknowledges support by the Economic and Social Research Council (ESRC, UK) under grant RES – 062-23-2211. Spagnolo acknowledges funding from the Swedish Competition Authority (Konkurrenseverket).
In most jurisdictions, antitrust fines are based on affected commerce rather than on collusive profits, and in some others, caps on fines are introduced based on total firm sales rather than on affected commerce. We uncover a number of distortions that these policies generate, propose simple models to characterise their comparative static properties and quantify them with simulations based on market data. We conclude by discussing the obvious need to depart from these distortive rules of thumb that appear to have the potential to substantially reduce social welfare.