Antitrust Enforcement Under Endogenous Fines and Price-Dependent Detection Probabilities

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

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Abstract

We analyze the effectiveness of antitrust regulation in a repeated oligopoly model in which both fines and detection probabilities depend on the cartel price. Such fines are closer to actual guidelines than the commonly assumed fixed fines. Under a constant detection probability, we confirm the long-run neutrality result with respect to fixed fines reported in Harrington (2005) and extend his result to the case where fines are directly proportional to illegal gains. In addition, we report that the profit-maximizing cartel price lies below the monopoly price when policy design features non-constant price-dependent detection probability. This offers partial support for current practice.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages13
Volume2010-020
Publication statusPublished - 2010

Publication series

NameTILEC Discussion Paper
Volume2010-020

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Keywords

  • Repeated Game
  • Cartel
  • Antitrust
  • Competition Policy

Cite this

Houba, H. E. D., Motchenkova, E., & Wen, Q. (2010). Antitrust Enforcement Under Endogenous Fines and Price-Dependent Detection Probabilities. (TILEC Discussion Paper; Vol. 2010-020). Tilburg: TILEC.