Antitrust Enforcement and Marginal Deterrence

H.E.D. Houba, E. Motchenkova, Q. Wen

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Abstract

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)
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages30
Volume2011-056
Publication statusPublished - 2011

Publication series

NameTILEC Discussion Paper
Volume2011-056

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Keywords

  • Antitrust Policy
  • Antitrust Law
  • Oligopoly and Other Forms of Market Imperfection
  • Stochastic and Dynamic Games
  • Repeated Games.

Cite this

Houba, H. E. D., Motchenkova, E., & Wen, Q. (2011). Antitrust Enforcement and Marginal Deterrence. (TILEC Discussion Paper; Vol. 2011-056). Tilburg: TILEC.