Cartel Overcharges and Optimal Cartel Fines
Robert H. Lande
University of Baltimore - School of Law
John M. Connor
Purdue University; American Antitrust Institute (AAI)
November 12, 2007
This Article examines whether the current penalties in the United States Sentencing Guidelines are set at the appropriate levels to deter illegal price fixing cartels optimally. The authors analyze two data sets to determine how high on average cartels raise prices. The first consists of every published scholarly economic study of the effects of cartels on prices in individual cases. The second consists of every final verdict in a U.S. antitrust case in which a neutral finder of fact reported collusive overcharges. They report average overcharges of 49% and 31% for the two data sets, and median overcharges of 25% and 22%. They also report separate results for domestic cartels, international cartels, more recent cartels, and bid‑rigging.
The authors conclude that the current Sentencing Commission presumption that cartels overcharge on average by 10% is much too low, and that principles of optimal deterrence indicate that current levels of cartel penalties should be increased significantly. The Sentencing Commission should consider raising the presumption to 15% for domestic cartels and 25% for international cartels. Alternatively, if the policymakers decide this distinction is unwise, a 20% overall presumption would be appropriate. This is a conservative and modest proposal in light of this article's results.
Number of Pages in PDF File: 16
Keywords: antitrust, cartel, deterrence, overcharges, price fixing, fines
JEL Classification: K21, K14, L41, L44, L65, L11, L13, N60
Date posted: November 16, 2007 ; Last revised: November 20, 2007
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