Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2011-11-22
Number: 11-166/1
Author-Name: Harold Houba
Author-Workplace-Name: VU University Amsterdam
Author-Name: Evgenia Motchenkova
Author-Workplace-Name: VU University Amsterdam
Author-Name: Quan Wen
Author-Workplace-Name: Vanderbilt University
Title: Antitrust Enforcement and Marginal Deterrence
Abstract: We study antitrust enforcement in which the fine must obey four legal principles: punishments should fit the crime, proportionality, bankruptcy considerations, and minimum fines. We integrate these legal principles into an infinitely-repeated oligopoly model. Bankruptcy considerations ensure abnormal cartel profits. We derive the optimal fine schedule that achieves maximal social welfare under these legal principles. This optimal fine schedule induces collusion on a lower price making it more attractive than on higher prices. Also, raising minimum fines reduces social welfare and should never be implemented. Our analysis and results relate to the marginal deterrence literature by Shavell (1992) and Wilde (1992).
Classification-JEL: L4, K21, D43, C73
Keywords: Antitrust enforcement, Antitrust Law, Cartel, Oligopoly, Repeated game
File-Url: https://papers.tinbergen.nl/11166.pdf
File-Format: application/pdf
File-Size: 281519 bytes
Handle: RePEc:tin:wpaper:20110166