Determination of Optimal Penalties for Antitrust Violations in a Dynamic Setting

E. Motchenkova

Research output: Working paperDiscussion paperOther research output

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Abstract

We analyze a differential game describing the interactions between a firm that might be violating competition law and the antitrust authority.The objective of the authority is to minimize social costs (loss in consumer surplus) induced by an increase in prices above marginal costs.It turns out that the penalty schemes which are used now in EU and US legislation appear not to be as efficient as desired from the point of view of minimization of consumer loss from price-fixing activities of the .rm.In particular, we prove that full compliance behavior is not sustainable as a Nash Equilibrium in Markovian strategies over the whole planning period, and, moreover, that it will never arise as the long-run steadystate equilibrium of the model.We also investigate the question which penalty system enables us to completely deter cartel formation in a dynamic setting.We found that this socially desirable outcome can be achieved in case the penalty is an increasing function of the degree of offence and is negatively related to the probability of law enforcement.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages33
Volume2004-96
Publication statusPublished - 2004

Publication series

NameCentER Discussion Paper
Volume2004-96

Fingerprint

Violations
Penalty
Authority
Social costs
Marginal cost
Law enforcement
Nash equilibrium
Cartel
Price fixing
Competition law
Long-run equilibrium
Differential games
Consumer surplus
Legislation
Planning
Interaction

Keywords

  • antitrust
  • policy
  • law
  • dynamic games

Cite this

Motchenkova, E. (2004). Determination of Optimal Penalties for Antitrust Violations in a Dynamic Setting. (CentER Discussion Paper; Vol. 2004-96). Tilburg: Microeconomics.
Motchenkova, E. / Determination of Optimal Penalties for Antitrust Violations in a Dynamic Setting. Tilburg : Microeconomics, 2004. (CentER Discussion Paper).
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Motchenkova, E 2004 'Determination of Optimal Penalties for Antitrust Violations in a Dynamic Setting' CentER Discussion Paper, vol. 2004-96, Microeconomics, Tilburg.

Determination of Optimal Penalties for Antitrust Violations in a Dynamic Setting. / Motchenkova, E.

Tilburg : Microeconomics, 2004. (CentER Discussion Paper; Vol. 2004-96).

Research output: Working paperDiscussion paperOther research output

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AB - We analyze a differential game describing the interactions between a firm that might be violating competition law and the antitrust authority.The objective of the authority is to minimize social costs (loss in consumer surplus) induced by an increase in prices above marginal costs.It turns out that the penalty schemes which are used now in EU and US legislation appear not to be as efficient as desired from the point of view of minimization of consumer loss from price-fixing activities of the .rm.In particular, we prove that full compliance behavior is not sustainable as a Nash Equilibrium in Markovian strategies over the whole planning period, and, moreover, that it will never arise as the long-run steadystate equilibrium of the model.We also investigate the question which penalty system enables us to completely deter cartel formation in a dynamic setting.We found that this socially desirable outcome can be achieved in case the penalty is an increasing function of the degree of offence and is negatively related to the probability of law enforcement.

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Motchenkova E. Determination of Optimal Penalties for Antitrust Violations in a Dynamic Setting. Tilburg: Microeconomics. 2004. (CentER Discussion Paper).